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In this month's "Notes & Trends":
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Alternative
Dispute Resolution
Judicial Law
Recent cases have reexamined mediation confidentiality, disclosure
of conflicts by ADR neutrals, and the
need for arbitrators to abide by the terms of arbitration clauses.
Federal subject matter jurisdiction over challenges to arbitration
awards also has been addressed. Finally, the National Conference
of Commissioners on Uniform State Laws has adopted the Uniform
Arbitration Act (2000), previously referred to in draft as the
Revised Uniform Arbitration Act.
Mediation Confidentiality. The Western District
of Pennsylvania became the second federal district court to recognize
a mediation privilege under Federal Rule of Evidence 501, which
empowers the federal courts to recognize evidentiary privileges
under "the principles of the common law as they may be interpreted
. . . in the light of reason and experience." (Sheldone
v. Pennsylvania Turnpike Comm’n, 2000 WL 1010590 (W.
D. Pa. 7/17/00) (following Folb v. Motion Picture Indus. Pension
& Health Plans, 16 F. Supp. 2d 1164 (C.D. Ca. 1998).)
The issue arose in a suit by a local union against an employer
alleging violation of the Fair Labor Standards Act. The plaintiff
union noticed the deposition of a representative of the employer
regarding the prior mediation of a grievance when the employer
purportedly made a significant admission. In response, the employer
filed a motion for a protective order to preclude such discovery.
In granting the protective order motion, the court held that
a mediation privilege was rooted in the imperative need for confidence
and trust in mediation, that such a privilege would serve the
public ends of encouraging settlement and reducing court dockets,
that such a privilege would cause modest evidentiary detriment
and that denial of such a privilege would frustrate a parallel
privilege adopted by the states.
The confidentiality of mediation or settlement conference
communications was also involved in Davis v. Kansas City Fire
& Marine Ins. Co., 195 F.R.D. 33 (N.D. Ok. 2000). There
a debtor filed a motion for reconsideration of an order to abstain
in favor of state court litigation, and the movant attached to
the motion an adversary’s settlement conference statement.
In reliance upon the local court rules and the federal Alternative
Dispute Resolution Act of 1998, the court held that such settlement
conference statements are confidential and that filing same with
the court breached that confidentiality. As a result, the debtor’s
attorneys were found to have engaged in sanctionable conduct
and were fined $1,500, and the decision was published and circulated
to all the judges of the court as notice of the improper conduct.
Disclosure of Conflicts by ADR
Neutrals. It is well established that arbitrators and
other ADR neutrals have a duty to disclose
professional or business relationships with any of the parties
at the commencement of the ADR proceeding
and while it is pending. But the issue arose in an unusual context
in Valrose Maui, Inc. v. Maclyn Morris, Inc., 2000 WL
944497 (D. Ha. 4/13/00). An arbitration award was vacated for
"evident partiality" when the arbitrator did not disclose
that during the course of the arbitration one of the party’s
attorneys asked the arbitrator if he or she would be able to
serve as a mediator in an unrelated case and subsequently engaged
the arbitrator as the mediator. The award, which was based upon
21 days of hearings, therefore, was nullified even though, the
court held, there was no evidence that the attorney was trying
to bias the arbitrator or otherwise act with an improper motive
or that the arbitrator was actually biased. Lesson for ADR neutrals: be careful about taking on new
neutral assignments from parties involved in a pending ADR proceeding.
Abiding by Terms of Arbitration Clauses. The
law has been clear that arbitration is a matter of agreement
and that a party cannot be compelled to arbitrate what he has
not agreed to arbitrate. This principle was at the heart of Coady
v. Ashcraft & Gerel, 2000 WL 1072386 (1st Cir. 8/8/00),
which vacated an arbitration award. The arbitration clause in
an agreement between a law firm and an attorney authorized arbitration
only of "ambiguities or questions of interpretation of this
contract." The arbitrators issued an award that made factual
findings concerning the attorney’s bonus and calculated
the amount of the bonus that was due. This, the court held, was
clearly beyond the scope of the arbitration clause. In contrast
to the narrow clause in Coady, broader arbitration clauses
were held to encompass claims other than breach of contract.
(Marsh v. First USA Bank, N.A.,
103 F. Supp. 2d 909 (N.D. Tex. 2000) (provision for arbitration
of "any claim, dispute or controversy . . . arising
from or relating in any way to this Agreement or your [credit
card] account" covered Truth in Lending Act claims); Norcom
Electronics Corp. v. CIM USA Inc., 104 F. Supp. 2d 198 (S.D. N.Y.
2000) (provision for arbitration of "any controversy or
claim arising out of or relating to this [distributorship] Agreement
or breach thereof" covered distributor’s tortious interference,
Lanham Act, uniform competition and conspiracy claims).) Lesson
for drafters of arbitration clauses: be wary of the danger of
narrow arbitration clauses -- the risk of successful challenges
to an arbitration award on the ground that it was beyond the
scope of the clause. Also be wary of the danger of broad arbitration
clauses: arbitration of claims other than breach of contract
claims.
Abiding by Terms of Arbitration Clauses Redux.
An arbitrator or arbitration organization can also exceed its
powers if the arbitrator is not selected in accordance with the
arbitration clause or the arbitration rules of an organization.
This was the issue in Hugs & Kisses, Inc. v. Aguirre,
98-4027, 220 F.3d 890 (8th Cir. 8/11/00), where the 8th Circuit,
reversing the district of Minnesota court, vacated an award.
The arbitration clause did not adopt any rules or specify a method
for selecting an arbitrator, and a subsequent stipulation to
stay a lawsuit stated that the parties "shall negotiate
in a good faith effort to reach an agreement on . . . the arbitrator."
Although the parties did not reach such an agreement, one of
the parties commenced an arbitration under the Code of Procedure
of the National Arbitration Forum, and when the other party refused
to participate in the arbitration, an arbitrator was selected.
The 8th Circuit said that the claimant should have moved the
district court, under 9 U.S.C. §4 (1994), to compel arbitration.
Lesson for drafters of arbitration clauses: have an agreement
on a set of arbitration rules that covers such things as appointment
of arbitrator when one of the parties defaults or have a hand-tailored
clause that addresses all the issues covered by such rules.
An example of the latter approach to drafting an arbitration
clause, as the 8th Circuit noted in Hugs & Kisses,
was Val-U Construction Co. v. Rosebud Sioux Tribe, 146 F.3d
573, 575 (8th Cir. 1998). There, the arbitration clause incorporated
American Arbitration Association rules that, after notice, allowed
an arbitration to proceed in a party’s absence. Thus, an
award was confirmed even though the respondent did not participate
in the arbitration.
Federal Subject Matter Jurisdiction; Challenges to Awards.
In Greenberg v. Bear, Stearns & Co., 2000 WL 1092135
(2d Cir. 8/700), the appellate court held that there was federal
question subject matter jurisdiction over an attack on a 10(b)5
award on the ground that it was in manifest disregard of federal
law. The court then held that there was no such manifest disregard.
This holding should be less important in Minnesota because the
8th Circuit has not expressly adopted manifest disregard of the
law as a basis for vacating an arbitration award. (E.g., PaineWebber
Group, Inc. v. Zinsmeyer Trusts Partnership, 187 F.3d 988
(8th Cir. 1999), cert. denied, 146 L.Ed.2d 313 (2000).)
Legislation
Uniform Arbitration Act (2000). The Uniform
Arbitration Act (UAA) was adopted by the
Conference in 1955 and has been enacted in Minnesota and 48 other
jurisdictions. The UAA closely tracks
the provisions of the Federal Arbitration Act (FAA)
that was adopted in 1925. Neither the UAA
nor the FAA has been amended since enactment.
Therefore, for all practical purposes, U.S. arbitration statutes
have not been revised over the past 75 years.
This summer, after a five-year effort, the Conference adopted
the UAA (2000). Its prime objective is
to advance arbitration as a desirable alternative to litigation,
but not to make arbitration simply another form of litigation.
To this end, the UAA (2000) endeavors
to render the arbitration process efficient, expeditious, and
economical in a manner that is fair to the parties and that promotes
finality of the decision of the dispute submitted to arbitration.
In accomplishing this goal, prime recognition is given to the
agreement of the parties in the agreement to arbitrate. The new
act also recognizes that not only are more issues being submitted
to arbitration, but they also have become increasingly complex,
often involving higher monetary amounts. The new act contains
statutory coverage for a number of important issues that were
not addressed in the original UAA. The
new act also reflects aspects of arbitration practice as it has
developed over the years. However, the UAA
(2000) is a default act on matters not covered by the agreement
to arbitrate except for certain fundamental provisions that cannot
be waived so as to insure fairness.
The UAA (2000) probably will come before
the 2001 session of the Minnesota Legislature. The UAA
(2000) and drafts of same are available at the Conference Web
site: www.law.upenn.edu/bll/ulc. |
By Duane W. Krohnke, Faegre &
Benson LLP |
