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.”

Make the Most of your Mediation: The Employment Case

Hon. Lynn Duryee (Ret.)

Hon. Lynn Duryee (Ret.)

Mediating employment disputes before legal action is filed gives parties an opportunity to settle their differences before incurring impressive attorney’s fees and expending valuable effort. Yet, it’s no easy thing to settle a case before discovery has been conducted. Here is how one set of motivated participants successfully settled a pre-filing employment dispute in four hours.

  1. Plaintiff submitted a reasonable demand far in advance of the mediation. Four months before the mediation was even set, plaintiff’s counsel sent his adversary a 10-page, beautifully written, old-school demand letter. The letter laid out the facts and law in support of plaintiff’s claim. It gave a demand that was aspirational, but not astronomic. And, most importantly, the letter was served in plenty of time for all the defendant decision-makers to review and consider in advance of the mediation.
  1. The lawyers agreed to exchange all the information they had well before the mediation. The lawyers appreciated that they would be able to better advise their clients about the benefits of settlement if each were in a position to evaluate the case as fully as possible. Accordingly, they exchanged the evidence available to them: wage statements, overtime records, emails, names of witnesses and expected areas of testimony, as well as current legal theories. This helped lawyers on both sides start the mediation feeling fully prepared to discuss the case with the mediator and with their clients.
  1. The lawyers cultivated a respectful relationship with one another. In separate pre-mediation calls with counsel, each side told the mediator that his opponent was a “good guy.” Although the lawyers disagreed on the facts and the value of the case, they had made a genuine effort to understand the position of the other side and respect the views of the opponent. The respect they had for one another contributed to the professional ambience of the mediation.
  1. All principals attended the mediation. The employee and employer were present in separate rooms, and both came prepared to speak openly with the mediator. Defense counsel had not had the opportunity to meet with plaintiff, and so, with counsel’s permission, the mediator invited defense counsel to meet the plaintiff and hear her story. The plaintiff came fully prepared to speak about her experience regarding pregnancy discrimination, while defense counsel rose to the occasion and listened carefully and compassionately. This brief session in itself was one big reason the case ultimately settled.
  1. The parties maintained momentum by remaining optimistic about settlement and making changes to their positions. Both sides were clear that they wanted to settle the case, and both were clear that their number (and not their opponent’s) was in the fair range. The parties were quite far apart during most of the negotiations, but each side continued to make baby steps to move closer together. Ultimately, each side offered a bracket, and after brackets were exchanged, the case settled easily. During the day, each side remained fully committed to settling. Neither side threatened to walk out. Neither side accused the other of bad faith. Each lawyer greeted the news about the change in position of his opponent with optimism. There was a feeling all during negotiations that settlement was just around the corner.

Early preparation. Excellent briefs. Professional lawyers. Presence of decision-makers. Mutual respect. There’s the prize-winning recipe for settling a case in just a few hours.

Achieving Workable – and Just – ADR Results in Family Law

Judge Deborah Fleck (Ret.), JAMS mediator and arbitrator

Judge Deborah Fleck (Ret.), JAMS mediator and arbitrator

Mediation, the ADR vehicle most commonly used in family law cases, frequently results in a final settlement – but often only after a marathon session dealing with the many important issues in the lives of family members.

There are ways to improve the process and results of family law mediation. The keys are open communication, adequate preparation, proper timing and mediator selection.

Open Communication – With the Opposing Party and With the Mediator.  Pick up the telephone early in the case.  The working relationship you develop by actually speaking with reasonable opposing counsel can save time and money.  While it may seem that using email is more efficient, it often takes more time and creates additional conflict.

Once discovery is reasonably complete, and the parties have had sufficient time to begin addressing the emotional and financial upheaval of separation, you can develop creative potential solutions with your client.   Exchanging mediation letters with legal issues defined and important documents attached far in advance of mediation can streamline the mediation process, and increase the likelihood of resolution on mediation day. Also, many mediators make a pre-mediation call, in which attorneys can provide information that is often helpful to the mediator in finessing trouble spots.

Preparation – Worth the Effort.  An attorney who is well prepared for mediation has not wasted time – if the case doesn’t settle, it is well on the road for trial.  If it settles, as most cases do, mediation will have saved time, money, and emotional stress for the parties.

Proper Timing and Mediator Selection.  Family law cases have emotional timelines, distinct from other types of litigation.  In many cases, it takes several months for one party to reach a stage of partial equilibrium.  It is not helpful to attempt to settle family law cases before both parties have reached that comfort level.  But when both sides are emotionally ready and have enough information regarding the facts and the law, mediation can allow them to avoid the financial and emotional costs of trial and move on with their lives.

When attorneys have worked together for several months, they can identify a mediator with the listening skills, depth of knowledge, temperament, and creativity to help the parties achieve resolution.   By focusing on what is just and equitable for both parties, attorneys and the mediator can achieve a compromise solution that is acceptable, one that meets the needs and abilities of both parties.

Hon. Deborah Fleck (Ret.) is a neutral with JAMS based in Seattle. She served for more than 20 years on the King County Superior Court and handles a wide range of complex civil, estate/probate, family law and personal injury cases. She can be reached at dfleck@jamsadr.com.

Uber, DirecTV and Beyond

Jeffrey Grubman, Esq.

Jeffrey Grubman, Esq.

Much of corporate America is determined to require consumers and employees to arbitrate disputes, including waiving their right to participate in class action lawsuits.

Two recent court decisions are instructive. The first is DirecTV, Inc. v. Imburgia (2015), decided by the U.S. Supreme Court on December 14, 2015. In DirecTV, Justice Breyer, writing on behalf of a divided Court, clarified and arguably expanded the Court’s earlier decision in AT&T Mobility LLC v. Concepcion (2011), holding that customers of DirecTV were bound by a binding arbitration clause and class action waiver in their service agreements with the company.

In her dissent, Justice Ginsberg wrote: “It has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees, no-class-action arbitration clauses. . . . Today’s decision steps beyond Concepcion . . . Congress in 1925 (when the Federal Arbitration Act was enacted) could not have anticipated that the Court would apply the FAA to render consumer adhesion contracts invulnerable to attack by parties who never meaningfully agreed to arbitration in the first place.”

The U.S. Supreme Court has not yet decided any cases applying the logic of Concepcion and DirecTV to class-action waivers in the employment context. Nevertheless, while the National Labor Relations Board has ruled that class-action waivers violate the National Labor Relations Act, the trend among the lower courts had been to uphold class-action waivers. See, e.g., Jasso v. Money Mart Express Inc.; Morvant v. P.F. Chang’s China Bistro, Inc. However, a recent decision by Judge Chen in the Northern District of California involving the ongoing class litigation between ride-sharing service Uber and its drivers involving whether the drivers are employees or independent contractors, went in the opposite direction.

In a 32-page decision issued on December 9, 2015, the court expanded the scope of its previously certified class to include drivers who did not opt out of the contract’s arbitration agreement: “the Court will certify a subclass of drivers who signed Uber’s more recent agreements even if they did not timely opt out.” Trial is scheduled for June 2016. Judge Chen denied Uber’s motion to stay the ruling pending its appeal. However, he agreed to stay execution of any judgment until the appropriate appellate court reviews his decision.

Not surprisingly, employers’ use of binding arbitration clauses and class action waivers is on the rise. In fact, the percentage of companies using arbitration clauses to preclude class action claims soared to 43 percent in 2014 from 16 percent in 2012, according to a survey of nearly 350 companies conducted by management-side law firm Carlton Fields Jorden Burt LLP. That same survey found that the percentage of class action lawsuits that address employment issues slipped to 23 percent in 2014 from 28 percent in 2011 and that class action suits from workers cost employers $462.8 million in 2014, down from $598.9 million in 2011.

Regardless of whether the U.S. Supreme Court decides the issue of the enforceability of class action waivers in the employment context in one of the pending Uber cases, the Court has shown an interest in the subject and will likely address the issue in the near future. The Court is likely to enforce binding arbitration clauses and class action waivers in the employment arena given its recent ruling in DirecTV. Consequently, employment litigators should hone their arbitration skills. This includes understanding that there are important and distinct differences in trying a case before a jury and trying a case to an arbitrator. Because the arbitrator acts as judge and jury, counsel should provide the arbitrator with a well-written and concise pre-hearing brief setting forth the key legal and factual issues. Also, nothing frustrates an experienced arbitrator more than hearing and seeing cumulative evidence. The best way to keep an arbitrator interested and engaged is to utilize effective demonstrative evidence. If attorneys who try cases before arbitrators were forced to sit as arbitrators themselves, they would realize that it is extremely difficult to sit passively for hours and stay alert and interested.

Finally, many employment, consumer and commercial disputes are settled in mediation on a class basis before a class has been certified. The parties then file a joint motion to certify the class as part of the settlement process. Large companies with enforceable class action waivers could still attempt to settle on a class basis with plaintiffs’ attorneys who file multiple individual arbitrations. To do so, the parties would engage in a private mediation and agree as part of the mediated settlement to file a lawsuit for the purpose of certifying a class and effecting the settlement. Undoubtedly, one of the many benefits of mediation is the flexibility it provides.

Jeff Grubman is a JAMS neutral, based in Florida. He can be reached at jgrubman@jamsadr.com.