TBA Law Blog


Posted by: Christy Gibson on Dec 30, 2014

by Marnie Huff*

A.  Public Service Award Announcement; Access to Justice; Mediation Statistics

Public service award: Steve Shields will be honored.  Congratulations to Memphis mediator Stephen Shields who was selected to receive the 2015 Grayfred Gray Public Service in Mediation Award. The award will be presented by the Coalition for Mediation Awareness (CMAT) on March 6, 2015 at the TAPM annual meeting in Nashville. The TBA Dispute Resolution Section is a member of CMAT.

Pro bono mediation - AJC Mediation Committee. The Tennessee Supreme Court Access to Justice Commission established a Committee on Mediation under its March 31, 2014 Strategic Plan. Commission Member Gail Vaughn Ashworth is chairing the Committee to implement the ATJ Strategic Plan Directive on additional pro bono mediation: “The Commission shall encourage the Alternative Dispute Resolution Commission and other groups to provide pro bono and reduced-rate mediation services to self-represented litigants, and to litigants who, although represented, have modest means or who are pro bono clients.” The ATJ Commission 2014 Strategic Plan is  at: http://www.tsc.state.tn.us/programs/access-justice. If you are interested in the ATJ Mediation Committee or opportunities to provide or request pro bono and reduced-rate mediation services, contact Gail Vaughn Ashworth at gail@wisemanashworth.com or Anne-Louise Wirthlin, ATJ Coordinator, Administrative Office of the Courts at Anne.Louise.Wirthlin@tncourts.gov.

Mediation data. The ADR Commission reports “there were 5,606 mediations reported for 2013. Of those, 3,542 (63.2%) had all issues resolved; 521 (9.3%) had issues that were partially resolved; and 1,542 (27.5%) had no issues resolved. There were 350 pro bono mediations plus 4 additional court ordered pro bono mediations conducted in 2013. The online mediation report is at: http://www.tncourts.gov/programs/mediation/resources-mediators. 

ADR jobs outlook 2012-2022.  According to the Bureau of Labor Statistics, there were 8,400 jobs available nationally for arbitrators, mediators, and conciliators as of May 2012. The median wage was $61,280, or $29.46 per hour. Employment of arbitrators, mediators, and conciliators was projected to grow 10 percent from 2012 to 2022, about as fast as the average for all occupations. But state and local government budget constraints may limit employment growth.  Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2014-15 Edition, Arbitrators, Mediators, and Conciliators, at http://www.bls.gov/ooh/legal/arbitrators-mediators-and-conciliators.htm.

B.  Ethics and Professionalism

Rule 31 mediation reports – need your password? If you have lost your username and password and are unable to submit an online mediation report, contact Claudia Lewis at (615) 741-2687 or at claudia.lewis@tncourts.gov.

Rule 31 a bit confusing on reporting requirements.  You need to look at both Section 5 and Section 18 of Rule 31.  Section 5 reports are required when a court orders mediation.  But Section 18 requires a different, statistical report which is required for all mediations done by a Rule 31 mediator, including ones that are not court-ordered.  Co-mediators should keep in mind that only one statistical report should be submitted by one of the co-mediators per advice from the ADRC office.  Here are the two rules:

     Section 5. Reports

     (a) The Order of Reference shall require the Rule 31 Neutral to file a final report pursuant to Rule 5.06, Tenn. R. Civ. P., with the court at the conclusion of the Rule 31 ADR Proceeding. The final report shall state only: (i) which parties appeared and    participated in the Rule 31 ADR Proceeding; (ii) whether the case was completely or partially settled; and (iii) whether the Rule 31 Neutral requests that the costs of the Neutral's services be charged as court costs. The report shall be filed within the time specified by the court in the Order of Reference. In the event the Order of Reference does not specify a deadline, the final report shall be filed within 60 days of the initial meeting with the parties.

     (b) Unless otherwise directed by the Order of Reference, the Rule 31 Neutral shall file status reports with the court every 30 days until the Rule 31 ADR Proceeding is concluded.

     (c) For an Eligible Civil Action mediated by a Rule 31 Mediator, a final report shall be filed in the manner described within this section.

     Section 18. Additional Obligations of Rule 31 Mediators

     . . .

     (e) Reports Required of Rule 31 Mediators. In addition to compliance with Section 5 of this Rule, Rule 31 Mediators shall be required to submit to the ADRC reports of any data requested by the ADRC consistent with the requirements of Section 19(a)(8) as to any mediation conducted by a Rule 31 Mediator, including those mediations which are not subject to Rule 31. The report forms will be available on the AOC website and from the AOC.

Rule 31, Sections 5 and 18 (emphasis added). Rule 31 is available online at http://tncourts.gov/rules/supreme-court/31.

“Sue and Be Sued”/Arbitration of fee disputes. For a discussion of programs for fee arbitration  and the risk of suing a client for non-payment of fees, including the possibility that your professional liability insurance might forbid such suits, see Susan Michmerhuizen and Peter Geraghty, ABA ETHICSearch, "Sue and Be Sued" at http://www.americanbar.org/publications/youraba/2014/july-2014/sue-and-be-sued.html 

“Competence:  Acquire it or Hire it!” discusses ABA Model Rule 1.1 (competence), Rule 1.6 (confidentiality), and state and local bar ethics opinions on how lawyers should approach competence and confidentiality  issues when using cloud computing. See Ethics Tip of the Month (May 2014) at http://www.americanbar.org/groups/professional_responsibility/services/ethicsearch/ethicstipofthemonthmay2014.html

C.  Articles and Resources for ADR Professionals

1.  ABA Section of Dispute Resolution’s November delegation to Cuba

In a well-timed trip, an ABA Section of Dispute Resolution delegation traveled to Cuba in mid-November 2014. For some musings on the trip, see Prof. John Lande’s “Cuba Diaries” posts at http://www.indisputably.org/?p=6199.

2.  Articles/guides – arbitration

Managing arbitrations. The ICC Arbitration Commission has published “Effective Management of Arbitration: A Guide for In-House Counsel and Other Party Representatives” (2014), available at  http://www.iccwbo.org/Search/?q=effective%20management%20of%20arbitration#gsc.tab=0&gsc.q=effective%20management%20of%20arbitration&gsc.page=1 (click on link for report). The Commission also has a Report on Techniques for Controlling Time and Costs in Arbitration” (2012), available at http://www.iccwbo.org/Advocacy-Codes-and-Rules/Document-centre/2012/ICC-Arbitration-Commission-Report-on-Techniques-for-Controlling-Time-and-Costs-in-Arbitration/ (click on link to report)

Dealing with an outmoded arbitration clause. While a contract’s arbitration clause may have been well drafted, circumstances may have changed by the time a dispute arises.  Zee Claiborne’s article “Is Your Arbitration Clause Outmoded?”, explains that parties can stipulate to modifications that will make their process better suited to their conflict. Parties can agree to meet the parties’ current needs on arbitrator selection, choice of ADR provider, applicable rules, and other issues such as discovery. Article at http://www.jamsadr.com/files/Uploads/Documents/Articles/Claiborne_Arbitration-Clause-Outmoded_Law_2014-07-14.pdf.

Arbitration clause in law firm’s retainer agreement unenforceable. As reported in Bloomberg BNA News, the New Jersey Supreme Court decided on September 23  in Atalese v. U.S. Legal Servs. Grp., LP, 219 N.J. 430, 99 A.3d 306 (2014) that an arbitration clause in a debt relief law firm’s retainer contract is unenforceable because it did not explain in a “sufficiently broad way” that a party signing it “is giving up her right to bring her claims in court or have a jury resolve the dispute.” “Debt-Relief Firm's Arbitration Clause Voided Because Implications Weren't Fully Explained," Bloomberg BNA (October 8, 2014) available at http://www.bna.com/debtrelief-firms-arbitration-n17179895799/?utm_source=LPC_Update&utm_medium=email&utm_campaign=news101014.

No mandatory employment dispute arbitration for certain federal government contractors. President Obama signed a new Fair Pay and Safe Workplaces Executive Order refusing to grant government contracts of over a million dollars to companies who mandate their employees arbitrate disputes involving discrimination, accusations of sexual assault, or harassment. See short article at http://www.mediate.com/articles/HinshawAbl20140808.cfm

3.  Articles - mediation

Lawyer-Mediator “scribing.” A recent law review Comment argues that the Washington State Bar Association should revisit its Advisory Opinion 2223 (2012). Opinion 2223 concludes that an attorney-mediator violates the Washington Rules of Professional Conduct (RPC) when drafting complex, customized provisions using original language and choices in legal documents such as Property Settlement Agreements, Orders of Child Support, or Parenting Plans for unrepresented parties. The Comment asserts that Opinion 2223 omits relevant comments to the RPC and fails to consider certain extra-jurisdictional authority, including NY Ethics Opinion 736. It notes the variety of conflicting ethics guidance among the states, with four states, including Tennessee, having amended professional conduct rules that permit attorney-mediators to be scriveners. See Tenn. RPC 2.4(e).  Caitlin Park Shin, “Drafting Agreements as an Attorney-Mediator: Revisiting Washington State Bar Association Advisory Opinion 2223,” 89 Wash. L. Rev. 1035 (October 2014). 

Pilot Flying J.  ADR-related articles reporting on the Pilot Flying J case have included:

New mandatory mediation program in NY complex commercial cases. The New York Supreme Court Commercial Division, a Manhattan-based state trial court that exclusively hears complex commercial cases, adopted a proposal for mandatory mediation. An 18 month pilot program became effective on July 28, 2014, with one in every five cases filed in the Commercial Division will be subject to mandatory mediation.  See “New York state court green-lights mandatory mediation pilot programme."    

Take a second look at form MOUs. A short online article explains reasons defense counsel may not be willing to sign a mediator’s form MOU in a products liability case and recommends revising the form to state that any settlement is conditioned on the parties signing a post-mediation release or mutually satisfactory settlement agreement. See “It’s the mediator’s form agreement – not yours” (Lexology June 16, 2014) at http://www.lexology.com/library/detail.aspx?g=9f9fe243-e1fa-470b-8133-86a01ba4657b.

Advice for mediators - leave yourself an out. Jim Melamed suggests mediators include understated approaches in their toolbox, e.g. ask “Might one option, among others I am sure, be something along the lines of …” rather than “Why don’t you. . .” Although a directive approach may be ethical, it does not leave the mediator with any elegant planned next move if the parties resist the mediator’s recommendation. See “Incremental Progress in Mediation: Baby Steps, Strategic Mediation & Less is More (July 2014).

Tips on non-verbal communication in ODR video conferences.  With the growing use of video conferencing in online dispute resolution, non-verbal communication becomes important to establish rapport and build trust among negotiation participants. Tips from Noam Ebner and Jeff Thompson, falling in five METTA categories (movement, environment, touch, tone, and appearance), include: make eye contact with the webcam (not a party’s image), ensure each party participates from a quiet location, avoid fidgeting, be prepared and confident (to help ensure a positive paralanguage), and dress suitably. Ebner and Thompson’s article includes a review of the literature on trust in mediation. Ebner, Noam and Thompson, Jeff, “@ Face Value? Nonverbal Communication & Trust Development in Online Video-Based Mediation” (February 14, 2014). Forthcoming, International Journal of Online Dispute Resolution. Available at SSRN: http://ssrn.com/abstract=2395857.

Food as an ingredient for mediations.  Jan Frankel Schau suggests asking the law firm hosting a mediation to supply lunch and validate parking cards. It can help move the parties to negotiate  cooperatively.  The “Value of a Gesture of Good Faith.”  

4.  Resources

Featured website – ADR Hub at The Werner Institute. The Werner Institute at Creighton University’s School of Law maintains an excellent website called ADRhub.com. It features various resources, including "What's Happening in Conflict Resolution" is a weekly roundup of  ADR news, jobs, and events. Check it out at http://www.adrhub.com/.

Online ADR clause builder. The American Arbitration Association provides an online “Clause Builder” designed to assist individuals and organizations in developing clear and effective arbitration and mediation agreements by offering a tool to draft a dispute resolution clause. The online screens guide you through options related to the development of a customized dispute resolution clause. At this time, the tool is limited to providing assistance with commercial and construction arbitration and mediation clauses.  See www.Clausebuilder.org.

ODR featured during annual Cyberweek. The Cyberweek 2014 program included discussion forums and other activities on integration of technology and dispute resolution in online dispute resolution. Cyberweek’s November 2014 archived content is at http://www.adrhub.com/page/cyberweek-2014.

Ken Feinberg, compensation administrator for GM ignition recall discusses claims processes. Veteran mediator Kenneth R. Feinberg, appointed to administer the General Motors ignition switch compensation program, was the featured speaker at the inaugural meeting of the Mid-Atlantic Regional Chapter of the American Bar Association Section of Dispute Resolution on October 27 in Washington, DC. In his remarks Feinberg recounted the various roles he played in the aftermath of a string of tragic incidents, provided insights into the claims process in the GM ignition switch case, and raised concerns about the fairness of 9/11 compensation and other funds. The ABA videotaped his full remarks which are also available in short segments:

  1. Specific protocols help guide resolving GM ignition claims
  2. Post-settlement, intramural fights pose new problem, opportunity
  3. Emotions can run high in mediation disputes
  4. Getting the parties to ‘yes’ takes good listening
  5. Mediation not panacea, but plays important role

ABA initiatives affecting ADR

Futures Commission  The ABA Commission on the Future of Legal Services (see http://www.americanbar.org/content/dam/aba/images/office_president/issues_paper.pdf) set up six working groups, one of which is devoted to dispute resolution:

Dispute Resolution. This working group will assess developments, and recommend innovations, in: (a) court processes, such as streamlined procedures for more efficient dispute resolution, the creation of family, drug and other specialized courts, the availability of online filing and video appearances, and the effective and efficient use of interpreters; (b) delivery mechanisms, including kiosks and court information centers; (c) criminal justice, such as veterans’ courts and cross-innovations in dispute resolution between civil and criminal courts; (d) alternative dispute resolution, including online dispute resolution services; and (e) administrative and related tribunals.

November 3, 2014 Memorandum from ABA Commission on the Future of Legal Services at 2, available at http://www.americanbar.org/content/dam/aba/images/office_president/issues_paper.pdf.

Access to Justice.  A coalition of ABA entities launched the Blueprint Project, exploring policy and procedure changes to make legal services more affordable and accessible. For example, would forming bar committees on unbundled legal services create greater opportunities for representation? Is it possible to use crowd-funding to expand access? Could we lower costs by redesigning court processes? See examples of possible changes on the Project’s Ideas page at http://www.americanbar.org/groups/delivery_legal_services/initiatives_awards/blueprints_for_better_access/ideas_page.html. The Blueprint Project Steering Committee launched an Access Challenge, reaching out for help in identifying avenues for change. The ABA President has asked:

     Please put the Access Challenge on your agenda, lead a discussion to generate ideas and perhaps create a committee within your group to explore policy changes and procedural improvements that will lead to increased access on a sustainable basis. Perhaps you have discussed these issues and have shovel-ready ideas.

When ideas are generated, go to www.ambar.org/blueprint and contribute them through the contact information on that page. The ABA will use its website to further discussions and move those ideas to platforms for change.

D.  ADRC Advisory Opinion and Policies

1.  New policies

The ADR Commission has adopted Policy Nos. 18-20:

     18.  An applicant deferred for Rule 31 listing must cure the specific listing deficiency requirement within one (1) year of being placed on deferral status.  If the specific listing deficiency is not cured within one (1) year, applicant must reapply for listing. For an applicant deferred for Rule 31 listing before the adoption of this policy, he/she must reapply for listing if the specific listing deficiency requirement is not cured on or before one (1) year from the approval date of this policy. (Adopted 07/29/14)

     19.  A Rule 31 listed mediator must renew his/her listing on or before December 31 of each year. The renewal fee for renewal applications received on or before December 31 of each year shall be $100.00. The renewal fee for renewal applications received between January 1 –January 31 shall be $125.00. The Rule 31 listed mediator who renews his/her listing during this time will still be in “active” status and can conduct Rule 31 mediations. If a renewal application and fee are not received by January 31 for the current renewal year, the Rule 31 listed mediator shall be placed on inactive status.The renewal fee for renewal applications received on or after February 1 for the current renewal year shall be $200.00.(Adopted 07/29/14)

     20.  The renewal fee for renewal applications received from inactive Rule 31 listed mediators shall be $200.00.(Adopted 07/29/14)

All ADRC policies are available at http://www.tsc.state.tn.us/programs/mediation/resources-mediators/policies.

ADRC Advisory Opinion. On April 16, 2014 the Tennessee ADR Commission issued Advisory Opinion 2014-002 on 1) whether a psychiatrist who is a Rule 31 mediator may conduct mediation at her medical practice, and 2) whether she may provide post-mediation psychiatric services to a participant in a mediation. The Commission advised that no current Rule 31 provision prohibits mediating in the physical space of a medical office, noting that mediations are routinely conducted in law offices. It further stated that it is difficult to imagine how a psychiatrist could treat a patient who was a party to a prior mediation, but noted that the second question would be a medical ethics question, not one for the ADRC. Copy of opinion at http://www.tsc.state.tn.us/sites/default/files/docs/adrc_ethics_advisory_opinion_2014-0002-04-22-14.pdf.

E.  Caselaw Update

2.  Selected Federal Court Cases and State Cases other than Tennessee

Arbitration

Res judicata. In W.J. O'Neil Co. v. Shepley, Bulfinch, Richardson & Abbott, Inc. No. 13-2320, (6th Cir. August 28, 2014), after losing millions of dollars building a hospital, W.J. O’Neil Company arbitrated claims against its construction manager. The architect and a design subcontractor (defendants) were added on indemnity claims. O’Neil did not formally assert claims against those defendants, but its claims against the construction manager did arise from the defendants’ defective and inadequate design work. O’Neil won an arbitration award against its construction manager. The construction manager did not establish its indemnity claims, so the defendants were not held liable. No party sought judicial confirmation or review of the arbitration award. O’Neil then sued the defendants in federal court. The court dismissed, finding the claims barred by res judicata. The Sixth Circuit reversed. O’Neil did not agree to arbitrate the claims at issue, so the arbitrator did not have authority to decide those claims. The arbitration award cannot bar the claims that the arbitrator lacked authority to decide. The dissenting opinion, on the other hand, asserts that, given that O’Neil agreed to a standard “flow through” provision in its contract with the construction manager, res judicata should apply.

Contract providing for arbitrator to decide arbitrability not ambiguous. In Milan Express Co. v. Applied Underwriters Captive Risk Assurance Co., Case No. 14-5193 (6th Cir. October 23, 2014) (not for publication) the Court of Appeals reversed the district court’s decision that it (not an arbitrator) had jurisdiction to rule on arbitrability. The district court ruled that the parties’ agreement was ambiguous as to who should decide this gateway issue. On appeal, the Court noted that the district court failed to identify what was ambiguous about the agreement.  Per the parties’ contract, “[a]ll disputes,” including disputes over “enforceability of any provision,” were to be determined “exclusively by binding arbitration.” The district court did not discuss the U.S. Supreme Court’s Rent-A-Center case, which involved similar contract provisions. The parties manifestly intended to submit the threshold question of arbitrability to the arbitrator. The district court lacked authority to rule on the arbitration clause.

No judicial admission or judicial estoppel preventing arbitration. In Trimas Corporation v.  William E. Meyers, No. 12-2420 (6th Cir. July 11, 2014) (not for publication), Meyers, a retired executive, sought arbitration of his claim for retirement benefits under a 1995 Supplemental Executive Retirement (SERP) agreement. The Court of Appeals reversed the district court’s denial of Meyers's motion to compel arbitration and the summary judgment for TriMas. The district court misapplied cases regarding the effect of a party’s admission to a fact in a pleading. No such admission occurred here. Nor does judicial estoppel apply, even though Meyers is involved in a related pending case where he claims that he is entitled to retirement benefits pursuant to a 2000 SERP agreement. On remand, the district court will have to decide whether the 2000 SERP is a void or voidable agreement that was substituted for a valid pre-existing obligation, and whether the 2000 SERP was then rescinded, causing the pre-existing agreement to be restored. After that determination, the district court is to determine whether a valid arbitration agreement exists and whether the parties’ dispute falls within the scope of that agreement.

Party seeking arbitration fails to supply evidence of what was subject to arbitration. In Robert Kay v. The Minacs Group (USA), Inc., No. 13-1974 (6th Cir. September 5, 2014) (not for publication), the district court dismissed the plaintiff's age discrimination suit and ordered arbitration. The Court of Appeals reversed. The parties’ arbitration agreement, assuming it is even valid and enforceable, does not apply to the employee's claims. The employer had moved to compel arbitration based on a “Receipt of Policies and Procedures.” It failed to submit a copy of the Policies and Procedures, so there was no evidence of what claims the arbitration clause covered.

Failure to complete arbitration before seeking injunction not a jurisdictional defect. In Workforce Development Cabinet, Office for the Blind v. United States of America, No. 12-6610 (6th Cir. July 21, 2014)  a dispute arose under the Randolph-Sheppard Act, 20 U.S.C. § 107–107e, which gives blind persons a priority in winning contracts to operate vending facilities on federal properties. In 2012, the Army solicited bids to provide dining-facility-attendant services at a Fort Campbell cafeteria. Rather than doing so under the Act, the Army issued the solicitation as a set aside for Small Business Administration Historically Underutilized Business Zones. The Kentucky Office for the Blind (OFB), representing a blind vendor who had the prior contract with the Army, filed for arbitration under the Act, and then filed suit to prevent the Army from awarding the contract. The district court held it lacked jurisdiction to consider a preliminary injunction request because OFB had not exhausted its administrative remedies. OFB appealed. Meanwhile, the arbitration resulted in a decision in favor of OFB. The Sixth Circuit determined its case was not moot because the challenged activity was capable of repetition yet evading review. The district court erred: the exhaustion requirements of 20 U.S.C. § 107d-1(b) are not jurisdictional under the U.S. Supreme Court’s clear-statement rule articulated in Arbaugh v. Y & H Corp, 546 U.S. 500, 515 (2006). Therefore, failure to complete the arbitration did not deprive the district court of jurisdiction in the injunction lawsuit. The Court of Appeals vacated and remanded the district court’s judgment.

Mediation

Case of first impression for Sixth Circuit permitting partial recusal after judge involved in settlement mediations. Paul Decker, et al v. GE Healthcare Inc. et al, No. 13-4002 (6th Cir. October 20, 2014) is part of a multi-district products liability litigation. The district court had been involved in mediations resulting in settlement of over 600 cases in the MDL. The Decker case went to trial, resulting in a jury verdict in favor of the plaintiffs against GE Healthcare (GEHC). On appeal, one of the issues involved the district judge’s sua sponte recusal from ruling on the plaintiffs' prejudgment interest motion. GEHC argued that this partial recusal required vacating the judgment. It claimed that since the judge recused himself from ruling on the prejudgment-interest motion, he should have also recused himself from ruling on GEHC's  motion for a new trial. Rejecting GEHC’s arguments and following the majority view in other circuits, the Court of Appeals held that 28 U.S.C. § 455 does not prohibit piecemeal recusal. Therefore, the district court's recusal on plaintiffs' prejudgment interest motion did not categorically require recusal from all other rulings in the case, including GEHC's motion for a new trial. Under § 455(a), "[a]ny justice, judge, or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." 28 U.S.C. § 455(a). Section 455(d)(1) states that a "'proceeding' includes pretrial, trial, appellate review, or other stages of litigation." Construing § 455(a), the Court found that the reasons for questioning judicial impartiality in one "proceeding" of a case do not necessarily apply in every "proceeding" of that case. Rather, in the appropriate instance, partial recusal serves the interests of case management and judicial economy. Here, the recusal was not based on any financial or other conflict, or any actual or perceived bias. The recusal had no bearing on the judge’s impartiality at the trial.

Section 455 recusal of magistrate not required where he conducted unsuccessful mediation,  then issued recommendation on summary judgment motion. In Ruby Blackmon v. Eaton Corporation, No. 13-6303 (6th Cir. October 16, 2014) (not for publication) the district court granted summary judgment in favor of the employer on Title VII hostile work environment and retaliation claims. The court had also decided that the magistrate judge, who issued a report and recommendation concerning the summary judgment motion, was not required to recuse himself solely because he had earlier presided over a mediated settlement conference between the parties. The Court of Appeals held that recusal was not required under 28 U.S.C. § 455, although it did not approve of the district judge referring the summary judgment to the same magistrate who conducted the mediation that included ex parte discussions. On the merits of the summary judgment, the Court reversed and remanded the case.

Report to bankruptcy court on bad faith in mediation results in sanctions. In Phaedra Spradlin, solely in her capacity as the Chapter 7 Trustee of Alma Energy, LLC, et al v. Gary J. Richard, et al, Nos. 13-5629, 13-5630, and 13-5728 (6th Cir. July 15, 2014) (not for publication), one of the issues involved a bankruptcy court order awarding sanctions to a plaintiff in an adversary proceeding. The sanctions against three parties were for bad faith and unpreparedness during a court-ordered mediation. The district court affirmed the award, and Sixth Circuit Court of Appeals affirmed the district court on that issue.  NOTE: this case involved a mediator filing a report with a bankruptcy court in Kentucky. Compare Tennessee ADR Commission formal grievance decision which states that Tenn. Sup. Ct. Rule 31(5)(a) “specifically provides that a final report of a mediator to the court shall include only the following: ‘(i) whether both parties appeared and participated in the Rule 31 ADR Proceeding; (ii) whether the case was completely or partially settled; and (iii) whether the Rule Neutral or Rule 31 Neutrals request that the costs of the neutral services be charged as court costs.’ The Rule does not permit the mediator to provide any further information to the court.” In Re: James R. Finney (January 3, 2006).

Mediator’s duty to disclose. In CEATS, Inc. v. Continental Airlines, Inc. et al, No. 2013-1529 (Federal Circuit June 24, 2014), a case was mediated, did not settle, and went to trial on a patent action. The losing party, the patent holder, moved for relief from the judgment under Fed. R. Civ. P. 60(b) based on an alleged relationship between the court-appointed mediator and the law firm representing most of the accused patent infringers. The trial court denied the motion, finding that the mediator had no duty to disclose his dealings with one of the firms involved in the patent litigation. On appeal, the Court disagreed with that finding, but left the patent holder with no relief. The Court stated that mediators “are bound by disclosure requirements similar to the recusal requirements of judges.” Slip op. at 10. It therefore examined the mediator’s disclosure obligations under the U.S. Supreme Court’s opinion in  Liljeberg v. Health Servs. Acquisition Corp., 486 SU.S. 847 (1988). It found that the mediator had a duty to disclose a conflict of interest. Applying the Liljeberg factors, however, it first held there was no risk of injustice because the patent holder had been able to litigate its claims in court and had no evidence that the mediator had disclosed confidential information to counsel for opposing parties. Second, denial of relief would not risk injustice in other cases. Third, although public confidence in the mediation process will be undermined to some extent by the Court’s failure to put greater teeth in the mediators’ disclosure obligations, it did not find that this justified extraordinary relief to the patent holder in this case. Copy of opinion at http://www.cafc.uscourts.gov/images/stories/opinions-orders/13-1529.Opinion.6-20-2014.1.PDF.

Confidentiality waived or trumped by due process notwithstanding strict California law.  In Craig Milhouse et al v. Travelers Commercial Insurance Company, No SACV 10-01730-CJC (ANx) (C.D. Cal. November 5, 2013), the trial court held that statements made during a mediation proceeding were admissible at trial because: 1) Milhouse had failed to object to the evidence and therefore waived any privilege claim; and 2) even if a proper objection were made, Travelers had a due process right to defend a bad faith and punitive damages claim by presenting evidence of statements made during the mediation. The parties have appealed to the Ninth Circuit in Milhouse v. Travelers Commercial Insurance, No. 13-56959. On September 11, 2014 the Southern California Mediation Association filed an amicus brief in the case, copy available at http://www.scmediation.org/wp-content/uploads/2014/10/Milhouse-amicus-brief.pdf

Confidentiality; proving legal malpractice after mediation.   In Alfieri v. Soloman, 263 Or. App. 492, 329 P.3d 26 (Ct. App. 2014) the Oregon Court of Appeals held that a plaintiff may be able to prove a malpractice claim against his lawyer, even though he was prohibited from disclosing the terms of an alleged inadequate settlement or any communications that occurred in the course of or in connection with a mediation. The parties had agreed that the settlement would be confidential. The Oregon mediation confidentiality statute did not prevent disclosure of post-signing communications between the plaintiff and his lawyer (other than ones regarding the terms of the settlement) where the lawyer allegedly did not inform the client that the other party's noncompliance with certain settlement terms raised settlement enforceability questions. See “Law Shielding Mediation Communications Doesn't Make Malpractice Claim Unprovable” (Bloomberg BNA June 19, 2014), discussing.  Copy of opinion at http://www2.bloomberglaw.com/public/desktop/document/Alfieri_v_Solomon_No_A152391_2014_BL_161201_Or_Ct_App_June_11_201.

3.  Tennessee Cases

Arbitration

Morgan Keegan & Company, Inc. v. William Hamilton Smythe, III, et al., No. W2010-01339-COA-R3-CV (Tenn. Ct. App. May 29, 2014) involved the remand of of  Morgan Keegan & Co. v. Smythe, 401 S.W.3d 595 (Tenn. 2013) (“Smythe I”). On remand from Smythe I, the trial court vacated the arbitration award on evident partiality grounds and remanded the matter for re-arbitration by a different panel. The Court of Appeals reversed and remanded the case to the trial court for confirmation of the arbitration award. The Tennessee Uniform Arbitration Act does require a reviewing court to vacate an award where there was evident partiality. Tenn. Code Ann. § 29-5-313. The party challenging the award must show that “’a reasonable person would have to conclude that an arbitrator was partial’” to the other party to the arbitration. Slip op. at 4, quoting Bronstein v. Morgan Keegan & Co., No. W2011-01391-COA-R3-CV, 2014 WL 1314843, at *3 (Tenn. Ct. App. April 1, 2014). The challenger of the award must establish specific facts indicating improper motives. The partiality must be direct, definite and capable of demonstration.  An “’amorphous institutional predisposition toward the other side’ is not sufficient” since is it not enough to establish an appearance of bias. Slip op at 5. Here, the trial court’s judgment was premised on its “perception of an overall appearance of bias.” The fact that two of the arbitrators had participated in prior arbitrations involving awards against Morgan Keegan, where the hearings involved similar evidence, was insufficient. Their awarding punitive damages against Morgan Keegan in a separate case was insufficient to show evident partiality. Although one of the arbitrators had been a broker for a separate claimant against Morgan Keegan in a different proceeding, that broker relationship did not involve the Morgan Keegan investments at issue and had terminated prior to the Smythe arbitration proceedings. Copy of opinion at smythem_052914.pdf.

In Morgan Keegan & Company, Inc. v. Michael Starnes, et al., No. W2012-00687-COA-R3-CV (Tenn. Ct. App. June 20, 2014), an arbitration panel had denied all claims against Morgan Keegan. The claimants opposed Morgan Keegan’s subsequent petition in the trial court to confirm the arbitration award. They asserted three grounds: 1) an arbitrator’s evident partiality, 2) misconduct, and 3) an exceeding of powers by the panel of arbitrators. The trial court vacated the arbitration award on only the “evident partiality” grounds and remanded the case for re-arbitration before a different panel. Citing Morgan Keegan & Co. v. Smythe, 401 S.W.3d 595 (Tenn. 2013), the Court of Appeals determined it had jurisdiction to hear the case under Tenn. Code Ann. § 29-5-319(a)(2012) because the trial court’s order necessarily denied Morgan Keegan’s petition to confirm the award. It next noted that the trial court had not adjudicated all of the claimants’ claims and piecemeal appeals are disfavored. Nevertheless, pursuant to Tenn. R. Civ. P. 2, the Court suspended the finality requirements of TRAP 3 in light of the “tortured history of the case” and chose to review the trial court’s decision. Reversing the trial court, the Court of Appeals ruled that the claimants had failed to establish evident partiality. The Court declined to address the claimants’ other arguments for vacatur and remanded the case to the trial court for adjudication of the misconduct and exceeding powers issues. Copy of opinion at starnesm_062014.pdf.

Enforceability of arbitration clause in employment contract that included buyout of executive’s equity interest. In Darrell Trigg v. Little Six Corporation et al, No. E2013-01929-COA-R9-CV (Tenn. Ct. App. July 28, 2014), a wrongful termination action, the plaintiff challenged the enforceability of an arbitration clause in an agreement with his former employer. That clause provided that unresolved disputes would be resolved by a three-arbitrator panel under the AAA commercial rules and the parties would evenly split arbitration costs. The plaintiff argued the arbitration clause was unenforceable due to alleged excessive, prohibitive costs of arbitration. The Court of Appeals affirmed the trial court’s decision that the agreement was freely negotiated, not a contract of adhesion, and not unconscionable under the facts in this case. The plaintiff was a highly paid, well-educated executive who negotiated his new employment contract, including a $1,578,599 buyout of his equity interest in the employer’s corporations and an annual salary of $154,472. It was not a take-it-or-leave-it contract. As required by the contract, the employer paid $50,000 to the employee when he was terminated without cause. Since the contract was governed by the Tennessee Uniform Arbitration Act, unconscionability was a question for the court, not the arbitrator. The contract was not unconscionable. The plaintiff did not meet has burden of showing the arbitration costs would be prohibitive. Although he asserted his income was now $25,000 per year and he had been forced to dip into retirement savings to make ends meet, he did not claim that he could not afford the estimated $10-30,000 up-front costs of arbitration. The AAA commercial arbitration rules provide possible deferral or reduction of administrative costs in the event of extreme hardship. The plaintiff had reaped the financial benefits from the employment agreement. He had time to read and consider his contract with the benefit of legal counsel and had easy access to the AAA commercial arbitration rules and the applicable fee schedule. There was no manifest inequality in the bargain that would shock the judgment of a common sense person. Although the $10-30,000 arbitration cost was concerning in the abstract, the plaintiff had not shown they were prohibitively expensive to him. Lastly, the contract is not void on public policy grounds. Copy of opinion at triggd_072814.pdf.

Individual’s bankruptcy did not deprive trial court of jurisdiction to rule on arbitration award involving party in capacity as trustee of a trust; arbitrator’s award was a final, binding decision; TUAA judicial review provisions are more restrictive than FAA. In Rafia N. Khan, Individually, and in her capacity as Trustee of the Rafia N. Khan Irrevocable Trust v. Regions Bank, No. E2010-01837-COA-R3-CV (Tenn. Ct. App. November 12, 2014), the trial court had vacated a disputed arbitration award. Mrs. Khan, individually and as trustee of a trust, had sued Regions Bank, alleging it violated the Tennessee Consumer Protection Act (TCPA) by refusing to release a lien on property owned by the Trust and pledged to secure Mr. and Mrs. Khans’ line of credit with the Bank. Mr. Khan had withdrawn $40,000 on the joint line of credit, a move Mrs. Khan opposed. The Khans later divorced and Mrs. Khan received a discharge in bankruptcy. Per the loan documents and by an agreed order, the Bank and Mrs. Khan arbitrated the dispute. Mrs. Khan successfully opposed the Bank’s attempt to include Mr. Khan as a party in the arbitration. The arbitrator, in a detailed final award, found that the Bank was not liable for any TCPA violations, Mrs. Khan was not personally liable for the $40,000 loan, and Mrs. Khan was not entitled to an order requiring the Bank to release the lien. The Court of Appeals reversed the trial court’s decision to vacate the arbitration award and addressed several issues. First, Mrs. Khan’s individual bankruptcy did not result in the Court losing jurisdiction to decide the appeal with respect to the Trust. Second, the arbitrator rendered a sound, well-reasoned decision and award. The Court rejected Mrs. Khan’s argument that the arbitrator declining to address certain issues constituted a failure to make a final, binding decision. The arbitrator correctly ruled that Mrs. Khan was not personally liable on Region’s $40,000 loan to her husband. He did not err by declining to decide whether Mr. Khan (a non-party to the arbitration) was personally liable for the debt and whether a Deed of Trust held by the Bank secured any debt owed by Mr. Khan. The Court discussed how the Tennessee Uniform Arbitration Act’s provisions on judicial review of an arbitral award are more restrictive than the Federal Arbitration Act. Third, the arbitrator did not exceed his power under the TCPA by awarding attorney fees to the Bank. He awarded attorney fees pursuant to the parties’ contract, not the TCPA. Copy of opinion at khanr_111214.pdf.

Settlements

Non-modification clause in MDA prevents modification of transitional alimony. In Barbara M. Hicks Vick v. Brandon P. Hicks, No. W2013-02672-COA-R3-CV (Tenn. Ct. App. November 17, 2014), the trial court dismissed the ex-husband’s petition under Tenn. Code Ann. § 36-5-121(g)(2)(C) to terminate his transitional alimony obligation after his ex-wife remarried. The parties’ marital dissolution agreement (“MDA”) had an unambiguous non-modification clause with respect to the alimony obligation. The Court of Appeals affirmed the dismissal for failure to state a claim, rejecting the ex-husband’s argument that the non-modification clause in the MDA was merely a restatement of Tenn. Code Ann. § 36-5-121 that transitional alimony is generally not modifiable. The alimony statutes do not apply here where the parties agreed in an MDA to terms different from those in the statutes. Copy of opinion at hicksb_11142014.pdf.

Tennessee Structured Settlement Protection Act. In a case of first impression interpreting the Tennessee Structured Settlement Protection Act (SSPA), Tenn. Code Ann. § 47-18-2601 et seq., In re A Transfer of Structured Settlement Payment Rights by Laurel J. Shanks, No. E2013-01702-COA-R3-CV (Tenn. Ct. App. May 27, 2014), the Court of Appeals upheld a court order approving transfer of structured settlement payment rights to a financial services company and its assignee. A separate financial services company had objected to the transfer. The trial court found that the transfer at issue met all statutory requirements. The Court of Appeals rejected the objecting company’s claims that the transfer order contravened two prior court orders partially transferring the payee’s structured settlement payment rights to the objecting company, in contravention of applicable law under the SSPA. Copy of opinion at shanksl_052714.pdf.