The New Jersey Supreme Court has rejected the enforceability of an arbitration provision in a law firm’s engagement agreement with “a sophisticated businessman”, holding that “for an arbitration provision in a retainer agreement to be enforceable, an attorney must generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client. Such an explanation is necessary because, to make an informed decision, the client must have a basic understanding of the fundamental
differences between an arbitral forum and a judicial forum in resolving a future fee dispute or malpractice action.”

Noting that “[w]e do not pretend hat this opinion is or should be the last word on this subject,” the Court also referred “the issues raised in this opinion to the Advisory Committee on Professional Ethics. The Committee may make recommendations to this Court and propose further guidance on the scope of an attorney’s disclosure
requirements.”

Expect this decision to resonate throughout the legal profession.

In this article, Nikolaus Pitkowitz discusses a decision of the Austrian Supreme Court holding that “an arbitrator’s alleged eye rolling does not by itself constitute a reason to challenge the arbitrator” for bias. As Mr. Pitkowitz explains, “an occasional showing of emotion by, for example, frowning, raising eyebrows, smiling or even eye rolling is part of human nature and still a long way from being unable to assess a dispute objectively and factually.”

Alison Frankel at Reuters has this article positing that a federal court’s refusal to grant preliminary approval to a proposed class action settlement may be predicated upon the court’s concern about “companies that unilaterally imposed arbitration on their workers and customers, then tried to shut down those same workers and customers when they attempted to enforce their contractual rights.”

Aetna provided insurance coverage to a California surgical center and determined that the center was erroneously characterizing claims that it performed surgeries at out-of-network facilities, when in fact they had been performed at its in-network facilities. This mischaracterization resulted in Aetna paying higher reimbursements to the center.

Alleging that the center’s action constituted fraud, Aetna filed a qui tam action in the California court. The center moved to compel arbitration based on its agreement with Aetna that provided for arbitration of fee disputes.

The lower court rejected the motion to compel, and the California Court of Appeal has affirmed this result. As the court explained, a qui tam action, while filed by an individual party, is brought on behalf of the state. Since the state was not a party to the arbitration agreement, the qui tam action was not subject to arbitration.

Last week, I referenced an article by Brendan Gooley discussing the decision by a federal court in Ohio that denied a motion to compel arbitration and dismissed the case brought by a plaintiff based on allegations that the defendant was refusing to arbitrate under the American Arbitration Association’s consumer rules. The court determined that the parties had not exhausted the procedural avenues open to them to arbitration and thus the court lacked jurisdiction.

In Lazzo v. Frontier Wealth Management, the Kansas District Court has confronted similar issues in a somewhat different procedural manner. In Lazzo, the plaintiff–asserting frustration at the alleged failure of the defendant to agree to arbitration under the AAA’s consumer rules–filed a federal complaint seeking adjudication of his substantive claims. The defendant balked, claiming that the dispute was arbitrable, and moved to compel arbitration. Granting the motion, the court held that while it was unclear whether the AAA’s consumer or commercial rules should apply, there remained ample arbitration runway to be discussed among themselves and AAA.

The common thread between the two recent cases is the court’s determination to defer to the arbitration administrator (here, the AAA) to determine the arbitration rules and procedures, and not to supplant the parties’ agreement to arbitrate.

The differing procedural postures resulted from the nature of the court filings. In case #1, where the plaintiff instituted federal litigation for purposes of seeking a motion to compel, the court determined that a hands off approach was appropriate, since the defendant was not disputing the propriety of arbitration, simply which rules apply. In case #2, plaintiff had abandoned the arbitration process and was seeking to adjudicate his substantive claims in court, giving rise to the need for an affirmative court determination compelling arbitration.

In this article, available through Lexology, Jon Paul Hoelscher and Amandeep Kahlon of Bradley Arant provide an analysis of the Texas Court of Appeals’ decision in Taylor Morrison of Texas, Inc. v. Kohlmeyer, in which the court denied a contractor’s attempt to require arbitration of a mold claim brought by the third generation purchaser of the home.

JD Supra has published this article by Brendan Gooley of Carlton Fields discussing the decision by an Ohio District Court in Linda L. Allen, et al. v. Horter Investment Management, LLC , arising out of a scenario where the contract provided for administration by the American Arbitration Association, yet the AAA declined administration based upon the defendant’s previous failure to comply with the AAA’s consumer protocols.

“Where a plaintiff from one state has initiated arbitration against a defendant from another state, seeking millions, but has then received an arbitral award of zero, does a federal court have diversity jurisdiction to entertain the plaintiff’s motion under 9 U.S.C. § 10(a) to vacate the arbitral award?”

So begins this article by Benjamin Glassman of Squire Patton Boggs, published in The National Law Review, discussing the Sixth Circuit’s decision in Hale v. Morgan Stanley Smith Barney LLC.

For the answer, take a peek at the article.

Edward Spiro and Christopher Harwood of Morvillo Abramowitz have authored this article, published in Lexology, discussing the Southern District (Furman, J.)’s recent decision in Accent Delight International Ltd. v. Sotheby’s, 2020 WL 7230728 (S.D.N.Y. Dec. 8, 2020).

In Johnson v. Drake, a divided Sixth Circuit upheld an attorney’s arbitration award against a former client arising out of representation in hip implant products liability litigation. The parties’ engagement letter provided for arbitration of fee disputes, and, following the client’s replacement of the attorney with other counsel, the attorney successfully pursued arbitration to recover his fee from proceeds recovered under a master settlement agreement.

The point of contention was the existence of a separate arbitration provision in the master settlement agreement, which the client contended trumped the engagement letter’s arbitration agreement. Thus, the issue was not one of whether the dispute should be arbitrated, but under what agreement.

The court’s majority determined that the engagement letter provision controlled, since, by the time the settlement was reached, the original attorney was not involved, and thus he had not agreed to the subsequent arbitration provision. The competing view was that, since the damages recovery that formed the basis of the attorney’s claim to a contingency came by virtue of the master settlement agreement, the attorney should be subject to the arbitration protocols embodied in the settlement.