Diversity Matters

A casual look around the room at any major mediation conference will quickly confirm that women and minorities are still significantly under represented. It may be a long slow journey to create more representative panels worldwide, but one that is well worth taking.

According to the ABA in April 2016, nearly half of all law degrees issued in the United States in the previous academic year were to women. However, if you look at elite law firms, only 18 percent of the partners at the top 200 firms are women. Within that same environment the numbers of Black, Latino and Asian partners represent an even smaller percentage  Few statistics are available to identify how many mediators in the U.S. are women or from an individual ethnic group, but it is safe to assume that they likely parallel the statistics in the elite law firms.

In an area of law where nuance and creativity are most highly valued, including more women and more people from different cultural backgrounds can only enhance the success of mediations.  Creative problem solving, the ability to leverage different types of communications styles and a real sensitivity to important cultural issues are among the most important skill sets a mediator or arbitrator bring to a case.

The pool of neutrals available to hear cases should more closely reflect the demographics of the population they serve; this is one of the most important ways to ensure successful resolution of cases and the ongoing growth of mediation as a dispute resolution tool.  Training and developing a younger, more diverse group of mediators is one of the best ways to ensure that mediation continues to grow as a conflict resolution tool.

ADR providers like JAMS and others recognize the importance of increased diversity among ADR practitioners. They have challenged law firms, corporations and legal organizations to consider women and ethnically diverse neutrals, track their firms’ neutral selection process to measure progress and provide resources to diverse professionals on preparing for a successful career in ADR. Finally they encourage their clients to consider diversity in their selection of ADR professionals.

Early Mediation of Insurance Coverage Disputes

Bruce A. Friedman, Esq.

Bruce A. Friedman, Esq.

Mediation of insurance coverage disputes prior to the filing of a lawsuit is becoming more common.  In part, this trend is the result of ADR provisions in insurance policies that require that the policyholder and insurer mediate coverage disputes prior to engaging in litigation.  Some of these provisions provide that the mediation shall continue until the mediator declares an impasse.  Others have a cooling-off period after the mediation that preclude either party from filing suit for a period of time (90 days) from the date of a failed mediation.

While early mediation and resolution of disputes is a laudable goal, saving the parties the time and expense of protracted litigation, the question is whether early mediation can result in a resolution of the dispute.  There are a number of things that the parties can and should do prior to the mediation to enhance the possibility of success, which include the following:

  1. At least a month before the mediation, counsel for parties should discuss what they need to know in order to enhance the possibility of settlement. This may require an information exchange phase of the mediation.  Once you have set up your mediation, the parties can exchange documents and information under the mediation privilege with an agreement to return the documents at the conclusion of the mediation.  The information could include the production of the underwriting and claim file if the coverage dispute arises in the third-party liability insurance context; documentation of the extent of the loss; documentation of the financial condition of policyholder if the issue of collectability is raised by the dispute.  These examples are only illustrative to spark your thinking on what you may need to see in order to evaluate the risk and value of the case.  In some cases, early consultation with experts and an expert report may be very helpful and persuasive.
  1. Mediation briefs must be exchanged as early as possible in order for each side to evaluate the positions of the other. It is too late to wait for the mediation to learn all of the arguments of the other side in order to give the issues the proper consideration.  Exchange of briefs also enhances the meditation process by allowing the parties to directly address each other rather than relying on the mediator to be the sole interpreter and communicator of the positions of the parties.  It educates the opposing side to the issues raised by the case.  Exchange briefs at least a week before the mediation to allow time for counsel to discuss the issues with their clients and to hopefully arrive at some objective evaluation of the prospective lawsuit.
  1. Assuming that the parties are serious about the early mediation and want to attempt to settle the matter, then each side needs to come to the mediation with settlement authority. By that I mean taking off your advocacy hat in the preparation for the mediation and analyzing the likelihood of success.  I suggest that counsel discuss the issues with a colleague in the office who is not involved in the case who may provide a more objective view.  After all, while the mediator is not going to decide the case, a settlement is going to reflect the strengths and weaknesses of each sides positions and an objective evaluation of the issues is crucial to arriving at a settlement.  Other factors in early resolution such as the cost of money, the saving of litigation expenses, and business reasons for resolving the dispute are all fair game for discussion and evaluation of the settlement value of the case, but they are not substitutes for objective risk assessment and the money necessary to get the matter resolved.

One more issue that needs to be considered in connection with the early mediation of insurance coverage disputes arising in the third-party liability insurance context is whether the insurance coverage issues can be resolved without the resolution of the underlying lawsuit against the policyholder.  If the early mediation addresses the duty to defend the underlying suit, then there is no reason to delay in mediating the issue.  However, if the intent of the insurance mediation is to resolve indemnity for loss arising out of the underlying litigation, then it is highly unlikely that the parties will be in a position to resolve the coverage issues without knowing the extent of that loss.  Under these circumstances, I strongly suggest that the mediation of both the coverage issues and the underlying case occur simultaneously.  The coverage issue may be a tool in the resolution of the underlying case and the cost of the third-party settlement will have a significant effect on the resolution of the coverage dispute.

Bruce A. Friedman, Esq. is a JAMS neutral, based in Southern California. He is an accomplished dispute resolution professional who has mediated and arbitrated a wide range of disputes, including insurance, class action, professional liability, business, real estate and entertainment and copyright matters. He can be reached at bfriedman@jamsadr.com.

Witnesses in Arbitration – Federal Arbitration Act

Richard Chernick, Esq.

Richard Chernick, Esq.

Testimony and documents may be obtained in arbitration in accordance with the parties’ agreement, the applicable institutional arbitration rules and provisions of law (federal and state arbitration acts, as applicable).  My prior article addressed the California Arbitration Act, but there are significant differences under the Federal Arbitration Act (FAA).

The FAA provides limited authority to subpoena witnesses or a summons to a hearing under Section 7:

The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case. The fees for such attendance shall be the same as the fees of witnesses before masters of the United States courts. Said summons shall issue in the name of the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.

This provision principally concerns summoning a witness to an arbitration hearing. It is also relevant, however, to the ability of a party to obtain documents from a third-party witness pre-hearing, and case law in this regard is quite limiting. Some federal courts have interpreted Section 7 as requiring the appearance of the witness at a hearing before one or more of the arbitrators; thus Section 7 does not authorize a documents-only arbitral subpoena for pre-hearing production of documents by a non-party. Hay Group, Inc. v. E.B.S. Acquisition Corp; Life Receivables Trust v. Syndicate 102 at Lloyd’s of London. A concurring opinion on Hay Group (Chertoff) suggests that so long as one of the arbitrators is present at the “hearing,” a party may ask the arbitrators to issue a summons for documents to be produced by the non-party at the “hearing;” once that occurs, the “hearing” is adjourned until the time set for the merits hearing. (Often once the subpoena is issued, the non-party is amenable to production of the requested documents directly to counsel, avoiding the need for anyone to attend an actual hearing.)

Presumably these holdings would apply to a pre-hearing subpoena for a discovery deposition, although neither Hay Group nor Life Receivables Trust addressed this issue. These cases also reject the view of the Eighth Circuit that Section 7 implicitly authorizes issuance of a subpoena for production of relevant documents for review by a party prior to the hearing.  In re Security Life Ins. Co. of America. The Third and Second Circuit cases also reject the view that in exceptional cases discovery subpoenas are allowed on a showing of special needs or hardship. COMSAT Corp. v. National Science Fdn. See Stolt-Nielsen SA v. Celanese AG (affirming enforcement of a subpoena issued to a non-party to give testimony in the presence of one or more of the arbitrators – there is nothing in the language of Section 7 that requires or suggests that the non-party witness may only be required to attend and testify at the merits hearing).

Subpoenas issued in arbitration are aided by the recent change to the Federal Rules of Civil Procedure, Rule 45, in 2013, which provides for nationwide service of a judicial subpoena; under the FAA that provision would by implication be applicable to summons served in connection with Section 7. A “summon(s) in writing … [is] served in same manner as subpoenas to appear and testify” in court; Stolt-Nielsen SA v. Celanese AG. The court may punish the witness for contempt.

A summons may be issued to a natural person or to a corporation. It is unclear whether Rule 30(b)(6) may be employed under Section 7. Section 7 contemplates issuance by the arbitrators or a majority of them, not by counsel. State law provisions permitting issuance by counsel are likely inapplicable under the FAA (National Broadcasting Co. v. Bear, Stearns & Co.) absent party agreement (cf. Mastrobuono v. Shearson Lehman Hutton, Inc.).

Fees & FINRA

Following are two interesting and recent federal court rulings related to arbitration.

Award of Attorney’s Fees Associated with Motion to Confirm Reversed on Appeal
Zurich American Insurance (as subrogee of Vinmar International) v. Team Tankers

Vinmar International chartered a ship from Team Tankers (TT). When the chemical shipped from Houston arrived in South Korea, it showed signs of yellowing, reducing its value.

Vinmar initiated arbitration pursuant to the charter agreement and the majority of the arbitration panel held that Vinmar was not entitled to relief. Vinmar moved to vacate the award on several grounds – manifest disregard of the relevant law and because the panel chairman had been diagnosed with a brain tumor prior to the initiation of arbitration, which he never disclosed and from which he died during the post-award proceedings.

The district court held that the panel had not manifestly disregarded the law, that the panel chair had not been guilty of “corruption or misbehavior” and that TT was entitled to “all costs of suit and attorneys’ fees incurred,” including the costs associated with moving to confirm. Vinmar appealed.

The United States Court of Appeals for the Second Circuit affirmed the district court’s confirmation of the award, concluding that Vinmar had failed to meet its “heavy burden” that the panel had manifestly disregarded the law. As to the failure to disclose the tumor, the Court wrote, “if an arbitrator’s failure to comply with arbitral rules, without more, could properly be considered ‘corruption’ or ‘misbehavior,’ the FAA’s grounds for vacatur would be precisely as varied and expansive as the rules private parties might choose to adopt.”

However, the Court found that the district court erred in awarding fees and costs incurred seeking to confirm the award. The Court found that the general rule that parties bear their own costs was not undone by the charter contract, because the contract authorized a fee award against a party that breached the charter as part of the non-breaching party’s damages. In this case, there was no finding or suggestion that Vinmar breached.

As to TT’s argument that the award was justified by bad faith during litigation, the court wrote “[p]erhaps something in the record could support a fee award under [the federal bad faith standards, 28 U.S.C. sec. 1927], but we have not found it, and the respondent carrier has made no effort to identify it. Accordingly, we must reverse the District Court’s award of attorney’s fees and costs.”

Non-FINRA Arbitrators Allowed if Specified in Pre-Dispute Employment Agreement
Credit Suisse Securities v. Tracy

John Tracy and other Los Angeles-based financial advisors entered into employment agreements with Credit Suisse. Those agreements contained provisions requiring an internal grievance procedure followed by mediation, followed by binding arbitration in the event none of the other non-binding processes produced a settlement.

A dispute arose regarding amounts owed under a compensation hedge program and when the internal grievance process and mediation didn’t produce a result, Credit Suisse filed a demand for arbitration with an outside provider. Meanwhile, Tracy and his peers filed a demand with FINRA. Credit Suisse commenced an action to stay or dismiss the FINRA arbitration. Tracy argued that FINRA rules require arbitration with one of its own panels, but the district court granted Credit Suisse’s petition and Tracy appealed.

The United States Court of Appeals for the Second Circuit affirmed. It looked to FINRA rule 13200, which states, “Except as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among … Members and Associated Persons.”

After finding a conflict between the employment agreement and the FINRA rules, the Court turned to the question of whether the requirement of application of FINRA rules, including that the arbitration be conducted in a FINRA forum, could be waived by a pre-dispute agreement. The Court reviewed prior cases related to waiver of other FINRA rules, other arbitration provisions inside and outside the context of employment and concluded “Our case law leads to the conclusion that a pre-dispute private agreement to arbitrate before a non-FINRA arbitral forum is enforceable.”