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Friday, July 25, 2014

Arbitration Award Based on Issue Preclusion (Collateral Estoppel) Enforced

A recent second circuit case confirmed an arbitrator's power to rule against a claim on the ground that of issue preclusion (collateral estoppel).  Specifically, the arbitrator found an Administrative Law Judge had already resolved the relevant issue against the claimant.  The case, American Postal Workers Union, AFL-CIO v. U.S. Postal Service, __F.3d__, 2014 WL 2535249 (2d Cir. June 6, 2014), is discussed here by Liz Kramer.

Tuesday, July 22, 2014

Settlement of Cases in Arbitration

Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play
by Thomas Stipanowich and Zachary P Ulrich, both of Pepperdine University School of Law

A wide-ranging new Straus Institute for Dispute Resolution Survey of experienced arbitrators, conducted with the cooperation of the College of Commercial Arbitrators, reflects the growing professionalization of commercial arbitration, increasing competition for cases, and many other trends in arbitration practice. It also shows that a grower percentage of arbitrated cases are being settled prior to award or to the start of hearings, and offers a strong rationale for greater emphasis on the role of arbitrators in setting the stage for or facilitating settlement. Early settlement of a dispute can be a uniquely effective way of minimizing cost and cycle time in dispute resolution, but the role of has not been given significant attention. Survey data indicate that the incidence of settlement varies widely among arbitrators, and suggest that some experienced arbitrators do not perceive their arbitral role as extending to the promotion of settlement. On the other hand, many experienced arbitrators are conducting themselves as proactive managers of the case before them, and many perceive a connection between their activities and settlement. One of the most effective means by which arbitrators “set the stage” for settlement is by ruling on dispositive motions. Other arbitrators have taken more direct action in facilitating settlement, sometimes by serving as both a mediator and an arbitrator with respect to a dispute. This article considers the function of settlement in the quest for economy and efficiency in dispute resolution and various approaches aimed directly at promotion of settlement, such as stepped dispute resolution, creative variants, and “med-arb.” It examines ways in which techniques featured in recent initiatives promoting more cost-effective and expeditious arbitration may also lay the groundwork for settlement; in addition, it explores the more contentious proposals put forward by the CEDR Commission on Settlement in International Arbitration. The article summarizes new Survey results showing a recent increase in the incidence of pre-hearing and pre-award settlement in arbitration, as well as Survey responses reflecting experienced arbitrators’ differing perspectives toward their role respecting informal settlement. Among other things, it focuses on the activities some arbitrators regard as setting the stage for settlement, particularly their handling of dispositive motions in arbitration; it also briefly considers the more controversial approach involving a single individual serving the dual roles of mediator and arbitrator. It concludes with straightforward proposals to stimulate appropriate involvement by arbitrators as well as attorneys and other “stakeholders” in setting the stage for settlement.

Saturday, July 19, 2014

The Arbitration Clause as Super Contract

by Drexel Law's Richard Frankel.  The abstract says in part:

judicial reliance on the federal policy favoring arbitration unfairly deprives litigants of access to the courts by pushing cases into arbitration that do not belong there. By creating special rules that favor arbitration and that deviate from state contract law, courts are enforcing arbitration agreements in situations where they would not enforce other agreements. This article questions the basis for the federal policy favoring arbitration and identifies several areas in which courts are relying on it to over-enforce arbitration clauses. Because the original purpose of the Federal Arbitration Act was to make arbitration clauses just like other contracts, this article proposes that courts should not rely on a poorly-conceived federal policy favoring arbitration, but instead should apply general contract principles to arbitration clauses. Doing so best ensures that litigants are not unfairly forced into arbitration in situations where they never agreed to it.

Separately, Frankel testified before the Consumer Financial Protection Bureau:

“A lot of corporate wrongdoing involves cheating consumers out of small amounts of money, but doing that across thousands or millions of people, so that the company makes huge amounts of money,” Frankel said. “What it does is ensure that instead of arbitration being an alternate form of dispute resolution, it guarantees that consumers have no forum at all.”

International Investment Arbitration

Challenging arbitrators under ICSID and UNCITRAL rules.  Challenges of International Investment Arbitrators: How Does It Work and Does It Work? by Chiara Giorgetti of the Richmond University School of Law. The Abstract:      

In this article, I examine and assess how challenges are decided in international investment arbitration, and suggest ways to improve challenge proceedings. The analysis focuses only on the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Rules) and the 1976 and 2010 UNCITRAL Arbitration Rules ("UNCITRAL . Rules (1976)" and "UNCITRAL Rules (2010)") because the great majority of international investment proceedings occur under either of those rules. In the first part, I describe the qualities required for an arbitrator's appointment under ICSID and UNCITRAL Rules. I then assess.and compare the standards for challenges under those rules, first procedurally, and then substantially. In the conclusion, I suggest that the ICSID challenges procedures should be amended to be more in line with the UNCITRAL Rules. Specifically, I argue that a neutral and independent body should decide arbitrator challenges in ICSID proceedings. I also argue that the standard applied in challenges to arbitrators in ICSID proceedings is too onerous, and should be interpreted taking into consideration the International Bar Association Guidelines for Conflict of Interest in International Arbitration (IBA Guidelines).

Saturday, July 12, 2014

Nursing Home Arbitration Enforced

The South Carolina Supreme Court recently enforced a nursing home's arbitration agreement, in
Dean v. Heritage Healthcare of Ridgeway, LLC, __S.E.2d__, 2014 WL 2771300 (S.C. June 18, 2014).

As Liz Kramer explains:

the agreement said that “any arbitration proceeding that takes place under this [] Agreement shall follow the rules of the [AAA]“.  However, the AAA stopped accepting personal injury disputes based on pre-injury arbitration agreements in 2003.  The nursing home moved to compel arbitration and the trial court denied the motion.  It found that the language about the AAA rules meant that the dispute should be heard by the AAA and since the AAA was not available, the arbitration agreement was invalid.  The Supreme Court of South Carolina reversed.  But before the supremes could get to the merits, they had to overrule their own 1993 decision, which held that nursing home contracts did not involve interstate commerce.  After reviewing the intervening cases from SCOTUS, the court found the nursing home agreement does involve interstate commerce and is governed by the FAA.  On the merits, the court found that the availability of the AAA to administer the arbitration was not a material term and instead the parties’ agreement simply calls for the arbitration to be governed by the AAA rules, regardless of what entity administers the proceeding.

Thursday, July 3, 2014

Criticism of SCOTUS Arbitration Cases: Concepcion and Amex

U.S. Supreme Court rulings AT&T Mobility v. Concepcion and American Express v. Italian Colors criticized by Lina Khan who writes that these "decisions culminate a thirty-year trend during which the judiciary, including initially some prominent liberal jurists, has moved to eliminate courts as a means for ordinary Americans to uphold their rights against companies. The result is a world where corporations can evade accountability and effectively skirt swaths of law, pushing their growing power over their consumers and employees past a tipping point."

Monday, June 30, 2014


My latest article, which is being published at 6 Yearbook on Arbitration and Mediation 56 (2014).

Abstract: In the United States, arbitrators’ decisions are legally binding. Courts generally confirm and enforce, rather than vacate, arbitration awards. Suppose, however, that the arbitration award is very different from the judgment a court would have rendered had the dispute been litigated, rather than arbitrated. And suppose this is because the arbitrator did not correctly apply the law. If the party that lost in arbitration (the party that would have done better with a correct application of law) asks a court to vacate the award because it is legally erroneous, will the court vacate or confirm the award? And does the answer depend on:

  • Whether the parties formed their agreement to arbitrate before or after the dispute arose?
  • Whether the agreement’s terms ask courts to vacate or confirm legally-erroneous arbitration awards?
  • Whether the arbitrator did not try to apply the law or tried to apply it but did so incorrectly?
  • Whether the law the arbitrator did not correctly apply is well-established or in doubt? Simple or complex?
  • Whether the law the arbitrator did not correctly apply is mandatory law (binding on the parties despite a contract term to the contrary) or default law the parties may contract around?

These questions are the subject of this article. I suggest that arbitration law in the United States has answered these questions differently over time and that these changes in legal doctrine roughly divide into four eras. Unfortunately, recent Supreme Court cases have left much uncertainty on the fundamental question whether arbitration awards must apply the law correctly to avoid vacatur.

Wednesday, June 25, 2014

American Arbitration Association Consumer Arbitration

More good work by my University of Kansas School of Law faculty colleague, Christopher R. Drahozal.  Professor Drahozal is serving as a Special Advisor to the Consumer Financial Protection Bureau on its study of arbitration clauses in consumer financial services contracts.

His abstract:

This chapter has provided an overview of consumer arbitrations administered by the American Arbitration Association, the largest administrator of consumer arbitrations. It does not, of course, purport to resolve the ongoing debate over arbitration and access to justice. A consumer’s incentive to bring a claim (and an attorneys’ incentive to take a case) depend on the costs of the process and the expected outcome in the forum. With the recent amendments to its consumer arbitration rules, the AAA reduced the cost to consumers of bringing claims in arbitration, both by lowering the upfront fees and by largely precluding reallocation of fees to consumers in the award. The expected outcome in arbitration (in particular, relative to the expected outcome in court) presents a much more difficult question because limits to available data preclude comparison of similarly-situated complainants. More research remains to be done.

Part of what I like about this chapter’s review of empirical studies is that it points out when selection effects make it hard to draw conclusions from the data.

Tuesday, June 24, 2014

Arbitration of Stockholder Disputes

Claudia H Allen, of Katten Muchin Rosenman LLP, has written Bylaws Mandating Arbitration of StockholderDisputes? forthcoming in the Delaware Journal of Corporate Law.

The abstract reads as follows:

Would a board-adopted bylaw mandating arbitration of stockholder disputes and eliminating the right to pursue such claims on a class action basis be enforceable? That question came to the fore as a result of late June 2013 decisions from the United States Supreme Court and the Delaware Court of Chancery, which, when read together, suggest that the answer to this question is yes. In American Express Co. v. Italian Colors Restaurant, the United States Supreme Court, interpreting the Federal Arbitration Act, upheld a mandatory arbitration provision, including a class action waiver, in a commercial contract. The decision focused upon the arbitration provision as a contract subject to the FAA. Next, the Delaware Court of Chancery rendered its opinion in Boilermakers Local 154 Retirement Fund v. Chevron Corp. The decision, which emphasized that bylaws are contracts between a corporation and its stockholders, upheld the validity of bylaws adopted by the boards of Chevron Corporation and FedEx Corporation requiring that intra-corporate disputes be litigated exclusively in Delaware courts. Subsequent United States Supreme Court and Delaware Supreme Court decisions addressing forum selection and the board’s power to adopt bylaws have only strengthened the argument.

In addition to complementing each other, both American Express and Boilermakers address a similar issue, namely, the explosion in class action and derivative litigation that settles primarily for attorneys’ fees, most commonly in the context of mergers and acquisitions. Stockholders ultimately bear the costs of such litigation. Class actions and derivative lawsuits are forms of representative litigation, in which named plaintiffs seek to act on behalf of a class of stockholders or the corporation itself. The plaintiffs are customarily represented by attorneys on a contingent fee basis, making the lawyer the “real party in interest in these cases.” If mandatory arbitration bylaws barring class actions were enforceable, the logical outcome would be a marked decline in class actions, since the alleged existence of a class is a principal driver of attorneys’ fees.

This Article examines the legal and policy issues raised by arbitration bylaws, whether adopting such bylaws would be attractive to public companies, likely reaction from stockholders and opportunities for private ordering. Since arbitration is a creature of contract, this article argues that there are opportunities for corporations to craft bylaws that take into account company-specific issues, while responding to many likely criticisms. However, the inherent bias of some stockholders and corporations against arbitration is likely to make experimentation in this area slow and difficult.

Tuesday, June 17, 2014

Vacating Arbitration Awards

Liz Kramer reports an Alabama Supreme Court justice's statement: “further reflection has caused me to question whether arbitrators who willfully ignore applicable state law are not, in fact, ‘exceeding their power’ or acting ‘beyond their authority’ within the contemplation of” Federal Arbitration Act Section 10(a)(4).

Sunday, June 15, 2014

Venue of Actions To Enjoin Arbitration

A Compelling Case for Streamlining Venue of Actions To Enjoin Arbitration, by Jason W. Burge & Lara K. Richards, in the Tulane Law Review.

"A circuit split has developed regarding whether federal courts have the power to compel arbitrations in districts outside their own, stemming from § 4 of the Federal Arbitration Act’s conflicting permissive versus mandatory venue provisions. There are likewise conflicting opinions regarding whether a federal court can enjoin an arbitration pending in another district. This Article explores the disparate decisions on these issues, arguing that venue for an action to enjoin arbitration should be limited to the district where arbitration is pending in order to promote judicial efficiency, to prevent forum shopping, to avoid inconsistent rulings, and to funnel parties quickly to arbitration."

Wednesday, June 11, 2014

10th Circuit Holds Unsigned Arbitration Agreement Unenforceable

Bellman v. i3Carbon, LLC2014 WL 2210739 (10th Cir. May 29, 2014), discussed by Liz Kramer

The court writes "Defendants argue that Plaintiffs manifested their acceptance of the
Operating Agreement, and specifically the arbitration provision, when they
invested in i3Carbon following receipt of the approximately 200-page
Investment Binder. However, the Operating Agreement included in the
Investment Binder did not have Plaintiffs’ names on it and did not indicate that
Plaintiffs were expected to sign it. Moreover, Plaintiffs have submitted
uncontroverted evidence that (1) i3Carbon never requested that they sign the
Operating Agreement or agree to its provisions, and (2) Plaintiffs, in fact, did
not sign the Operating Agreement."

Saturday, June 7, 2014

California Arbitrator Disclosure

California Mediation and Arbitration summarizes recent case applying California statute on arbitrator disclosure:

"Though Code of Civ. Proc., section 1281.9 requires disclosure of “any professional or significant personal relationship” [between arbitrator and party or lawyer], evolving case law doesn’t require disclosure of any professional relationship.  Pointing to rules that are concerned about only two years of relationships (Ethics Stds., std. 7(d)(8)(A), Code of Civ. Proc., section 170.1(a)(2)), the Court concluded a five year old relationship did not need to be disclosed."