“Opinion of Wisconsin District Judge Again Illustrates that Arbitration Is a Creature of Contract”

John Lewis of Baker Hostetler has this article in Lexology, discussing the Wisconsin District Court’s decision in O’Bryan v. Pember Companies, Inc., , in which the court held that a provision in a 48 page employee handbook requiring the submission of all disputes to arbitration was ineffectual due to an employee acknowledgement form on its last page, which provided:

“Unless I have an individual written employment contract, my employment relationship with Pember . . . is at will.***

“I acknowledge that this handbook is neither a contract of employment nor a legal document.”

As Mr. Lewis points out, the decision emphasizes that “[h]aving an arbitration provision in a handbook with a broad contract disclaimer may prevent its enforcement.”

Court Holds That Breadth Of Arbitration Agreement Supports Motion To Compel Tort Claims

In WFP Securities, Inc. v. Davis, a California appellate court was confronted with an arbitration agreement between an individual and her former investment advisors that provided as follows:

“I agree that all controversies which may arise between us concerning any transaction, the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, or any other matter, shall be determined by arbitration in accordance with the rules of the National Association of Securities Dealers, Inc. then in effect. “

Having lost an arbitration against the advisors “to recover losses allegedly incurred as a result of their bad investment advice,” the investor responded to the advisors’ judicial efforts to enforce and collect on the arbitration award by asking the court to compel arbitration of new claims she wished to assert. As the appellate court recounted the investor’s description of these claims, they were for “civil conspiracy to commit fraud, defamation, fraud, intentional infliction of emotional distress, invasion of privacy, declaratory relief, breach of contract, and conspiracy to cause economic harm.”

In overruling the lower court’s denial of the investor’s request to arbitrate, the appellate court held that

The arbitration agreement here is the broadest of broad. It provides for arbitration of controversies between the parties concerning (1) ‘any transaction’; (2) the construction,
performance, or breach of (a) the agreement or (b) any other agreement between the parties (regardless of when the parties entered into it); and (3) ‘any other matter.’ And (3) is a whopper:
It provides for arbitration of a controversy between the parties concerning any matter at all, regardless of whether, as some agreements limit the scope of the arbitration provision, the
claims arise out of or relate to the agreement. (3) easily includes the tort claims Davis alleges she has against [the advisors].
..

The phrase appears at the end of the clause and is not modified by any subsequent language limiting its scope, such as “relating to the agreement” or “relating to the investment” or even ‘having something to do with anything financial.’”

Decision To Redact Documents Results In Denial Of Motion To Compel Arbitration

In Sunnova Energy Corp v. Spruce Lending, Inc., the Texas Court of Appeals affirmed a lower court’s denial of a party’s motion to compel arbitration, finding that the movant had failed to present the court with a sufficient documentary record to establish that the arbitrability decision was to be made by the arbitrator. As the court explained, the agreements attached to the “motion to compel arbitration were ‘redacted for confidentiality purposes’ and included only the ‘dispute resolution clauses.’ … [W]e cannot look at the arbitration portion of the agreements in a vacuum.”

Since the movant failed to submit the agreements to the court in their entirety, “neither this court nor the trial court could determine whether the parties intended to arbitrate arbitrability…” Accordingly, the movant failed to meet its burden of proving “it was entitled to an order compelling arbitration.”

Minnesota Decisions Serve As A Reminder That Courts Should Rarely Interfere With Arbitration Decisions

In two decisions issued this week, the Minnesota Court of Appeals refused invitations to overrule arbitrators’ decisions. In Netter v. Raisch, the court emphatically rejected the proposition that an arbitrator exceeds his powers if he wrongly interprets the law. As the court held,

“While we do not necessarily see any error in the arbitrator’s interpretation of the declaration or application of the law, we note that, even if we accepted Raisch’s argument that the arbitrator erred in these respects, the arbitrator would not have exceeded his powers. In other words, misapplication of the law is not a basis to vacate an arbitrator’s award and an appellate court ‘will not overturn an award merely because [it] may disagree with the arbitrators’ decision on the merits.’”

In Bennett and Koch Construction, LLC v. Jones, the trial court vacated an arbitrator’s decision that refused to award attorneys’ fees, determining that the arbitrator exceeded his powers in failing to follow a contractual provision that entitled the prevailing party to recover fees. The Court of Appeals reversed, holding that the lower court erred in overriding the arbitrator’s decision:

“The issue of attorney fees for the prevailing party was subject to arbitration because it was
included in the contract. Therefore, the arbitrator’s attorney-fees decision was also not subject to de novo review by either the district court or our court and must be reinstated.”

Court Rejects Losing Party’s Post-Award Contention That Arbitrator Was Impaired By Pain Killers

The recent California appellate decision in Alper v. Rotella begins by noting that “four business partners had a dispute that ultimately led to a nine-day arbitration hearing. During the hearing, the arbitrator openly took pain medications. After the arbitrator issued a final ruling, the two losing partners filed a petition in the trial court to vacate the arbitration award. They alleged—for the first time—that the arbitrator was ‘unable to properly perceive the evidence or . . . unable to properly conduct the proceeding.’”

With evidence that was, at best, inconclusive as to any impairment–the victors, of course, asserted that “[the arbitrator] interjected with pointed questions, paid full attention, heard and ruled on motions and objections. He held numerous proceedings before, during and after the arbitration, and considered briefings and argument at each stage of the process,” and even the losing party submitted a letter from a physician asserting a professional opinion that “a dose of Percocet, on its own, does not generate sufficient impairment immediately after taking it, in the experienced user”–the court refused to set aside the award.

The court focused on the loser’s full awareness that the arbitrator admittedly and openly was taking pain killers due to a recent injury, and raised no issue of alleged impairment until after receiving an adverse result. Indeed, the victor’s counsel asserted in a declaration that “I spoke to [plaintiffs’] counsel frequently during breaks in the arbitration, and before and after the arbitration itself. We discussed a myriad of topics and issues, ranging from case related to where to have dinner. Never once did Plaintiffs, Mr. Bailey or Mr. Hargan come close to express any concern or observation to me regarding [the arbitrator’s] competency or ability to be impartial. Nor did I ever observe Plaintiffs or their counsel express concern to [the arbitrator] directly or ask him if he was okay.”

“Preparing Clients for Productive Mediations”

In this article available at JD Supra, Abby Silverman offers helpful insight into “participants’ reaction to one aspect of the mediation process—the bargaining.” As she explains, “[t]he emotions surrounding litigation may explain why participants in mediations, experienced and inexperienced litigants alike, are shocked and surprised in the normal course of mediation it becomes a bargaining session.” She discusses the opportunities available to prepare and condition parties to transition from discussions about the emotions and merits of the dispute to the colder reality of back-and-forth negotiation.

“First Circuit Concludes App User Is Bound By Arbitration Clause In App’s Terms and Conditions”

The First Circuit’s recent decision in Emmanuel v. Handy Technologies, Inc. is the subject of this JD Supra article by Carlton Fields. As the article explains, the court compelled arbitration of a putative class action brought on behalf of nannies and housekeepers offering services through the defendant’s app, alleging that they were misclassified as independent contractors rather than employees. The court found that click through terms and conditions providing for arbitration were enforceable.

“Data Protection Obligations in International Arbitration”

This article, available in The National Law Review and authored by Leith Ben Ammar of Greenberg Traurig, discusses “the applicability of data protection laws to international arbitration, describes who is responsible for compliance with the data protection laws, and identifies key rules and principles likely to apply.”

Prevailing Party In Arbitration Loses Right To Seek Attorneys’ Fees By Not Presenting Evidence Prior To The Issuance Of An Award

Parties often include a demand for attorneys’ fees in claims submitted for arbitration. The opportunity to recover attorneys’ fees is dependent upon the success of the underlying substantive claim, so the inclination of a party is often to wait until the arbitrator issues the award on the claim.

However, because the Federal Arbitration Act and comparable state statutes impose limitations on an arbitrator’s ability to act following the issuance of an award, a party must be proactive regarding the attorneys’ fees claim. Once an award issues, the arbitrator becomes functus officio, losing the power to act, except for exceedingly narrow reasons granted by statute, such as correcting an evidence mathematical miscalculation.

Therefore, a party who hopes to recover attorneys’ fees has two options. First, the party can submit the evidence and legal claims for the attorneys’ fees before the arbitrator issues the award, thereby presenting the issue squarely to the arbitrator.

Second, the parties and arbitrator can discuss the efficiencies involved in deferring the attorneys’ fee evidence and arguments until the arbitrator issues the award on the merits, since an award adverse to the claimant will moot the issue. If the parties agree to pursue this route, the arbitrator will issue an “interim award” on the merits, with the case being kept open so that attorneys’ fees issues can be subsequently entertained.

The risks of doing neither recently became apparent in Chen v. Kyoto Sushi, Inc. d/b/a Kyoto Sushi, in which the Eastern District of New York refused to modify an arbitration award to include attorneys’ fees, costs, and expenses. The prevailing claimant argued that the arbitrator “made ‘an evident material mistake’ in failing to include attorney’s fees and costs in the award. The court, however, held that responsibility belonged to the claimant, not the arbitrator: “it was not the arbitrator who made a mistake, but Chen, who failed to submit
arguments and evidence in support of reasonable attorney’s fees and costs prior to or concurrently with his post-arbitration brief.”

This article discussing Chen, authored by Alex Silverman of Carlton Fields, is available at JD Supra.

“Seventh Circuit Holds EEOC Right-to-Sue Letter Does Not Trump a Binding Arbitration Agreement”

Christina Gallo of Carlton Fields has authored this article, available at JD Supra, discussing the Seventh Circuit’s decision in Melton v. Pavilion Behavioral Health System. As the article notes, the court “found that the EEOC’s right-to-sue letter did not override the arbitration agreement; it merely allowed Melton to move beyond the administrative process and pursue any rights that he may have in court — rights that Melton had waived by previously entering into the binding arbitration agreement.”