The Article Is About Two Extraordinary Cases In Which Judges Exercised The Summary Contempt Power.
Thanks to the generous permission of California Litigation, The Journal of The Litigation Section, State Bar of California, “Summary Contempt and Due Process: England, 1631, California, 1888” is now available on my website by clicking here.
An abbreviated version of this article appeared earlier as an August 6, 2014 post on California Attorney’s Fees, a blawg to which I co-contribute.
Paul J. Dubow, an arbitrator and mediator in San Francisco, asks whether post-award investigation can vacate arbitration awards in “ADR Update”, California Litigation (Vol. 27, No. 1 2014), p. 37. It is easy for an unhappy client’s attorney to do a Google search about an arbitrator after the arbitration award has already been made – and sometimes, facts relevant to arbitrator bias will be discovered. On January 26, 2014, I posted about the leading case in which, to quote Mr, Dubrow, “[t]he aggrieved attorney for plaintiffs . . . conjured internet magic.” Mt. Holyoke Homes LP v. Jeffer Mangels Butler & Mitchell LLP, 219 Cal.App.4th 1299 (2013) (arbitrator’s reliance on reference from name partner at defendant’s law firm raised reasonable suspicion of bias, resulting in vacation of arbitration award).
Of course, it may be just as easy to do the same Google search for information publicly available on the internet before commencing arbitration. And therein lies a dilemma, according to Mr. Dubrow. On the one hand, the integrity of the system would be undermined by an arbitrator who withholds information, hoping that the parties will not discover it. On the other hand, there is the possibility of abuse, if the party obtains information of bias before the disclosures are due, decides to retain the arbitrator, and then exploits the information the arbitrator failed to disclose only after receiving an adverse award.
Mediation Confidentiality Privilege.
Hanna B. Raanan, a litigation attorney and mediator, writes about exceptions to the confidentiality protection of mediation in “Things Your Mediator Didn’t Tell You About The Mediation Confidentiality Privilege,” Orange County Lawyer (April 2014), p. 36. She reminds us: 1) discoverable material doesn’t become confidential just because it is used in mediation; 2) execute confidentiality agreements before exchanging information – or else you may not be covered by mediation confidentiality; 3) mediation confidentiality will terminate if there are no communications with the mediator ten days following the mediation – unless you draft around this problem; 4) there are situations in which mediation confidentiality may be weighed against other policies, and found not to be absolute; and (5) if the ADR procedure is not within the definition of “mediation”, then mediation confidentiality may not exist. Her solutions: address the problem of confidentiality before engaging in mediation, and use a savvy mediator aware of the issues.
Ms. Raanan’s admonitions are a useful antidote for the mediator who announces: “Everything said here will be confidential.”
Pointing to conclusions of the preliminary report that “larger institutions are more likely to use arbitration clauses, arbitration clauses in account agreements can often be complex, and the agreements often contain class-action waivers,” Mr. Zeisel comments that the CFPB’s preliminary report may leave a misleading impression that arbitration clauses disadvantage consumers.
He concludes, “we are pleased the CFPB now says it will compare the costs and benefits to consumers from arbitration with those derived from individual and class action litigation.” Indeed, such a result would be an excellent outcome, because it is devilishly difficult to compare litigation and arbitration costs and benefits, and such a comparison would be of great benefit to consumers, corporations, and legislators.
However, some of Mr. Zeisel’s comments deserve scrutiny:
He says that for nearly 90 years, arbitration has been a valuable means for consumers to quickly and easily resolve disputes in an efficient and affordable manner. Ninety years – that’s almost the exact age of the Federal Arbitration Act of 1925. But as Prof. Imre Szalai convincingly shows in his historical study of arbitration in the United States, the Federal Arbitration Act was created with an intent to provide an efficient and affordable dispute mechanism for merchants of equal bargaining power. See my February 19, 2014 review of Outsourcing Justice. Whether consumer arbitration is cost efficient is precisely the subject that deserves further study by the CFPB.
Mr. Zeisel comments, “Congress recognized the importance of arbitration as a means of resolving consumer disputes when it enacted the Federal Arbitration Act in 1925.” But “resolving consumer disputes” played a very minor part, if any, in the enactment of the Federal Arbitration Act. And that is precisely why the fairness and efficiency of consumer arbitration deserve further attention by Congress.
In support of the argument that consumer arbitration is cost efficient, Mr. Zeisel states that studies show: “the upfront cost to the consumer was far less than the fee required to file a complaint in the federal courts.” But that’s not a simple comparison. The fee for filing a complaint in federal court is $350. Given the restrictive requirements of federal jurisdiction, the cases filed in federal court are not going to be small claims cases. If the matter is a consumer class action, a $350 filing fee is not an excessive entry cost. Consumer advocates argue that class actions provide economies of scale. On the other hand, most consumer disputes are much smaller than class action disputes, and the litigation alternative is not federal court, but small claims court, where filing fees will be less than $350. (And in fact, many consumer arbitration clauses have a “carve-out” provision allowing for the filing of small claims.).
Now if the CFPB is able to methodically compare costs and benefits to consumers of arbitration versus litigation, that may help to answer the question we started with: whether consumer arbitration is really fair and efficient.
Arbitration Is The Product Of The Reform Era – And The Need For Reform Is Not Over
The book cover of Outsourcing Justice, Professor Imre Szalai's history of arbitration in the United States, might lead one to believe that the author will fire a broadside against arbitration today. First, there is the red, white, and blue carton of French fries, with fine print at the bottom: "BY READING THIS LABEL YOU AGREE TO ARBITRATION." That's just enough to recall and conjure up James v. McDonald's Corporation, 417 F.3d 672 (7th Cir. 2003), in which the plaintiff, disappointed purchaser of a game ticket, discovered after-the-fact that she was bound by an arbitration clause. That clause was contained in the rules for the "Who Wants to be a Millionaire" game ("Official Rules"); and, the French fry cartons to which game cards were affixed had language directing participants to see the Official Rules for details. Second, the title, Outsourcing Justice, has a somewhat pejorative ring to it, in a world where “outsourcing” connotes heartless cost cutting.
In fact, Outsourcing Justice is clearheaded, well written, balanced, and scholarly. Prof. Szalai places the development of arbitration within its historical and social context, while also looking at the important role played by individuals who lobbied to expand the role of arbitration in the 20th century.
Before the passage of modern arbitration statutes, arbitration was severely encumbered in the United States, because arbitration agreements could be disavowed before judgment was entered. But the increasing development of interstate and global commerce required that merchants be able to rely with certainty on the validity, irrevocability, and enforceability of arbitration agreements. Also, the sudden end of World War I resulted in a spate of government contract cancellations, making it necessary to find fast and efficient means to resolve contract disputes.
In particular, Prof. Szalai explores the remarkable role played by Charles Bernheimer, the "Father of Commercial Arbitration." Deeply disturbed by the unethical practice of merchants during the Panic of 1907, a time of economic shock in the country, Bernheimer made it his life's passion to promote arbitration as an alternative to burdensome litigation. A successful cotton merchant himself, Bernheimer gave generously of his own time and money to promote arbitration. He appears to have pushed for reform out of altruistic motives, rather than for "any selfish or evil motives to strip away rights from unknowing individuals." (p. 91). Bernheimer was a pragmatic idealist.
Bernheimer's efforts to promote arbitration, beginning in 1907, encountering a major victory with the passage of New York’s arbitration statute in 1920, and culminating with the creation of the Federal Arbitration Act in 1925, belong to the Progressive Era. Prof. Szalai tells the story of Bernheimer's intensive lobbying efforts, in the Chamber of Commerce, the New York State Legislature, the American Bar Association, and the United States Congress. While the narrative of lobbying efforts may be a bit of a slog at times, it is also very revealing in its details about how lobbying could once, at its best, be a constructive source of reform, and about how, once upon a time, lawyers and politicians with different opinions could listen to one another's arguments, and cooperate to produce useful legislation. It is also a story about how one dedicated man, Bernheimer, could make a difference by being persistent, passionate, knowledgeable, and responsive to the concerns of others who would today be called “stakeholders.” For two decades, the resourceful Bernheimer was indefatigable in his commitment, yet found time for summer archeological expeditions, exploring the Southwest.
Placing the development of arbitration in the context of the Progressive Era, Prof. Szalai notes that consent, efficiency, and faith in a bureaucratic approach were all hallmarks of the Progressive Era – as well as of the movement to spread arbitration. The Federal Arbitration Act created a loose, malleable framework, intended to be a work in progress, and an exemplar of consent, efficiency, and bureaucratic expertise.
Prof. Szalai argues, however, that the "work in progress" is not yet complete. In the case of arbitration, consent, especially in consumer transactions, is usually a legal fiction. Efficiency is often an elusive goal. And blind faith in a loose procedure may be misplaced – is the system neutral, or does it disadvantage the consumer, the employee, and the class member? Arbitration is not defined in the Federal Arbitration Act. Congress or perhaps the judiciary "should clearly define what is meant by arbitration covered by the law, and address several minimum procedural guarantees in arbitration, and what types of parties or claims should be covered by an arbitration law." (p. 201).
Outsourcing Justice shows that the development of arbitration case law has strayed from the intent of some of arbitration’s Progressive Era proponents. In the congressional history of the Federal Arbitration Act, early proponents of arbitration intended that it apply to arms-length agreements between merchants, and that small disputes with consumers and employment disputes might not be covered. As case law has developed, however, arbitration has increasingly colonized the areas of consumer and employment law.
Of course, judges will always look first to the plain language of the Federal Arbitration Act and state statutes, and will only delve deeper into legislative history if they cannot find the answers they want in the language of the statutes. While the legislative history is very interesting, it is often ambiguous, with its meaning contested and elusive.
Outsourcing Justice also argues that "progressive measures often failed to provide clarity or guidance regarding how to balance [consent and efficiency]." (p. 200). However, on calibrating the balance, Prof. Szalai does not offer much guidance.
Andrew J. Pincus, the lead attorney for AT&T in AT&T v. Concepcion, 563 U.S. 321 (2011) has said, “Our courts are expensive, overburdened and virtually impossible for nonlawyers to navigate. For these claims, it is arbitration or nothing.” See my June 4, 2012 post. Prof. Szalai has not written a book to engage with this argument, because the province of his book is law and history, not law and economics.
On a note of optimism – or at least hope – Prof. Szalai concludes, “I hope America’s arbitration laws are about to go through another period of reform.” (p. 202). That’s the progressive spirit of Charles Leopold Bernheimer, from a time long ago, channeled through the medium of Prof. Imre Szalai.
Article Offers Statistical Analysis Of What Works In Mediation
UCLA School of Law offered a program today presented by Daniel and Lisa Klerman, entitled “Inside the Caucus: An Empirical Analysis of Mediation from Within”, based on an article of the same name. Poking around on the Internet, I found that the article is available online by clicking here. It provides interesting statistical analysis of 414 mediations. Some of the findings: a very high success rate was achieved with mediator’s offers – used in 90% of the cases here, it was 99% effective in this data set; the gender of the lawyers and the plaintiff mattered little to outcome; and cases settled closer to defendant’s first offer than to plaintiff’s. Daniel Klerman is a professor of law and history at USC Law School. Lisa Klerman is a mediator and lecturer at USC Law School.
Sixteen Cases – And We Posted About Twelve Of Them . . .Plus One More Supreme Court Case . . .
On January 10, 2014, I attended a meeting of the Orange County Bar Association Litigation Section. The law firm of Connor, Fletcher & Hedenkamp LLP made a presentation on new statutes, new rules, and new cases, including a review of sixteen published ADR cases. As it turns out, I posted about twelve of the sixteen ADR cases in 2013. Here are the cases, links to my posts and to the cases, and the holdings.
Ahdout v. Hekmatjah, 213 Cal.App.4th 21 (2013) (licensing requirement for contractors constitutes explicit legislative expression of public policy that if not enforced by arbitrator constitutes grounds for judicial review). January 27, 2013 post.
American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) (the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration just because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery). June 25, 2013 post.
Barsegian v. Kesller & Kessler, 215 Cal.App.4th 446 (2013) (nursing home’s petition to arbitrate for lack of evidence that husband delegated authority to arbitrate to wife). April 18, 2013 post.
Gray v. Chiu, 212 Cal.App.4th 1355 (2013) (California Arbitration Act And ethics standards require arbitrator to disclose a lawyer in the arbitration is a member of the dispute provider resolution organization). January 22, 2013 post.
HM DG, Inc. v. Amini, 219 Cal.App.4th 1100 (2013) (holding arbitration agreement valid notwithstanding absence of agreed method for appointing arbitrator). November 2, 2013 post.
Optimal Markets Inc. v. Salant, 221 Cal.App.4th 912 (2013) ( Code of Civ. Proc. section 128.7 sanctions are unavailable in arbitration where attorney has not “presented” pleading to Court.) December 8, 2013 post.
Peng v. First Republic Bank, 219 Cal.App.4th 1462 (2013) (failure to attach AAA rules, and ability of employer to unilaterally modify arbitration agreement did not result in substantive unconscionability). November 1, 2013 post.
Roldan et al. v. Callahan & Blaine et al., 219 Cal.App.4th 87 (2013) (plaintiffs, each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be excused from the obligation to pay fees associated with arbitration). August 28, 2013 post.
Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695 (2013) (arbitration agreement, including unilateral amendment clause, held not unconscionable – covenant of good faith and fair dealing reins in ability to make unilateral changes). April 28, 2013 post.
Sonic-Calabasas A Inc. v. Moreno, 57 Ca.4th 1109 (2013) (Federal Arbitration Act preempts a state law rule “categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment”; however, the agreement requiring that a Berman hearing to be bypassed in favor of arbitration “may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer”). November 5, 2013 post.
To the above list of significant ADR cases, I would add Oxford Health Plans LLC v. Sutter, 569 U.S. __, 133 S.Ct. 2064 (2013), in which the U.S. Supreme Court held that an arbitrator does not “exceed his powers” under section 10(a)(4) of the Federal Arbitration Act where the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he determined that it did. Because the arbitrator construed the contract, he did not “exceed his powers”, and it does not matter whether the arbitrator construed the parties’ contract correctly. June 15, 2013 post.
At The Beginning Of Their Case, Litigants Prefer Mediation To Most Adjudicative Procedures
Dr. Donna Shestowsky, a Professor of Law at UC Davis, with a doctorate in psychology, has authored a very interesting study on litigants’ preferences, at the beginning of their case, for different dispute resolution procedures. Her article, “The Psychology of Procedural Preference: How Litigants Evaluate Legal Procedures Ex Ante,” appears in the Iowa Law Review, Vol. 99:637 (2014), and is available online. Dr. Shestowsky’s article “reports the first multi-jurisdictional study of how civil litigants whose cases are filed in court assess legal procedures ex ante.” Her most basic conclusion is that, “contrary to what some scholars have argued, litigants prefer mediation to most adjudicative procedures ex ante.” While some scholars may find this conclusion “surprising,” I suspect that many litigators and judges will not find it surprising.
Some of Dr. Shestowsky’s conclusions are:
Litigants significantly preferred mediation to all forms of adjudication except for the judge trial.
Litigants preferred to negotiate with the parties alongside their attorneys rather than having the attorneys negotiate without the parties.
Litigants expected binding arbitration to be the procedure with the lowest use, and attorneys negotiating without clients to be the procedure with the highest use.
Litigants tended to like each procedure more than they thought they would use it.
The more litigants highly estimated a trial win, the more they liked the idea of a jury trial.
Women liked binding arbitration and jury trial less than men did.
Repeat litigants liked binding arbitration more than newbies.
Personal injury litigants liked jury trial more than property litigants.
Ethnicity was not a factor in any of the significant models.
The most surprising result to me was that litigants who opposed a company liked binding arbitration more than litigants who opposed an individual – surprising in light of the assumption that consumer and employment plaintiffs shun arbitration. However, this doesn’t really address the hot area of developing law concerning the availability of arbitration in consumer class actions. Consumer class actions and the “psychology of procedural preference” could well be a separate study.
Dr. Shestowsky candidly acknowledges caveats regarding the study: 1) the correlations do not establish causality between the factors examined; 2) the response rate was 10% – not unusual for a mail survey, but still 10%; 3) future replication is desirable, as only three jurisdictions were studied (Third Judicial District Court, Salt Lake City, Utah, Superior Court of Solano County, California, Fourth Judicial District, Mulnomah County, Oregon); 4) important categories of cases had to be excluded – foreclosure and collection cases, as well as landlord-tenant, family law, tax, and bankruptcy cases.
This study will certainly provide fertile ground for many more such studies. For example, the “case pull” for the study involved litigants identified during a two-week period within the filing of their case. At that point in time, most first-time litigants know very little about ADR and what to expect from litigation. How do their attitudes about litigation procedures evolve as their case grinds on?
And what about the significant role of the judge in shaping the litigant’s evaluation of legal procedures? Often, judges give a pep talk to litigants, urging ADR, because it empowers the litigants, is relatively inexpensive, makes it easier to collect money, allows a negotiated outcome rather than a thumbs up or down result for the litigant, resolves most disputes, allows creative “win-win compromises”, is confidential – and, oh yes, clears court calendars. But frequently this talk comes very late in the process. How might the judge shape the litigant’s procedural preferences, if the litigant heard that talk early on from the court?
Who pays for the mediator, and how does that factor affect procedural preferences?
And why should we care about how the litigant evaluates legal procedures ex ante more than we care about how the litigant evaluates legal procedures post ante?
In a recent interview, former Secretary of State Robert Gates said, “the dirty little secret in Washington was that the biggest doves wore uniforms.” Similarly, one could say that the biggest proponents of mediation are often the suited lawyers and the robed judges. They have seen the psychic and economic costs of legal warfare. “I must say as a litigant,” Judge Learned Hand famously lectured, “I should dread a law suit beyond almost anything short of sickness and death.” And perhaps this is not such a bad thing, because if the conclusions of Dr. Shestowsky’s article are correct, then the procedural preferences of the litigants must often align with the opinions of judges and lawyers. If only the legislators and taxpayers would support a robust mediation program in the court system, everyone might be just a little bit happier – or at least less disappointed.
“A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes and Other Commercial Conflicts”
James C. Freund, former Skadden, Arps M&A transactional attorney turned mediator, is the author of the engagingly written and interesting new book Anatomy of a Mediation(Practising Law Institute 2012). Mr. Freund’s “anatomy” is a clinical tour, by a very wise guide, through the mediation process.
The book’s subtitle, “A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes and Other Commercial Conflicts,” reveals the author’s perspective. Experienced as a dealmaker, Mr. Freund sees mediation as a negotiation, but it is primarily a negotiation between the mediator and the parties. Unlike many mediators who play shuttle diplomacy, transmitting offers and counter-offers back and forth, Mr. Freund prefers to negotiate with the parties, until he can bring them within the range of magnetic attraction necessary to draw them together to settle their dispute.
Mr. Freund’s approach is “distinctive” because it is his approach, empirically based on his long career spent negotiating favorable outcomes where business interests clash. It is an approach that works for him. His approach is relentlessly evaluative, and assumes a relatively high level of legal and business sophistication among the participants. He is canny, shrewd, pragmatic, and cerebral, but clearly knows when to apply a dose of humor to ease a tense mediation.
In 2012, the big issue was class arbitration, with several states having pro-class-arbitration decisions reversed based on the Supreme Court’s 2011 ruling in Concepcion. In the federal courts, divergent views emerged on how to apply Stolt-Nielsen, a SCOTUS case holding arbitrators exceeded their authority under the Federal Arbitration Act by permitting class-wide arbitration under circumstances where the parties had stipulated that their agreement was silent as to the availability of class-wide arbitration. Ms. Kramer observes that this is a rapidly changing area of law about which SCOTUS seems “passionate”, and concludes, “I can’t wait to see what’s on Scalia’s naughty list in 2013!”
Double Header in 2013
“Two Games Today.” Puck. 1913. Library of Congress.
On November 20, 2012, I posted about American Express Co. under the heading, “Can An Arbitration Class Action Waiver Be Enforced If The Plaintiff Would Not Be Able To Effectively Vindicate Federal Statutory Rights Through Arbitration?”
“In my view,” writes Liz Kramer, “the real issue here is will SCOTUS acknowledge any expense-based exception to its arbitration precedent?” In other words, are economic realities ever a sufficient reason to nix arbitration? The Second Circuit believed the answer was yes, in the case of antitrust litigation. But Ms. Kramer opines that this decision is likely to be reversed.
Oxford Health Plans affords SCOTUS an opportunity to resolve the split over the application of Stolt-Nielsen. Does class-wide arbitration require express authorization, or can it be implied through the traditional methods of contract interpretation by the arbitrator?
Note: I have added Arbitration Nation to my Blogroll.
Arbitration, like boilerplate, creates a private legal system that displaces the public one. Whereas the common law depends on the rule of law, and creates a system of precedent that is available to the public, an arbitration award is typically a private affair, and even a mistake of law or fact needn’t lead to the reversal of an arbitration award. The connection between boilerplate and arbitration is closer still, because often the agreement to arbitrate is an adhesive contract created by boilerplate-like provisions. Because arbitration is a subject of this blawg, a review of a new book on the unlovable subject of boilerplate in The Law Wall Street Journal resonated for me.
In the December 21, 2012 edition of The Wall Street Journal, Robert E. Nagel, professor of constitutional law at the University of Colorado, reviews Boilerplate(Princeton 2012), a new book by Prof. Margaret Jane Radin of the University of Michigan Law School. Prof. Nagel describes Boilerplate as “a sophisticated and thought-provoking treatment of the boilerplate contracts that everyone signs yet few read or understand.”
“Because the terms aren’t bargained over,” writes Prof. Nagel, summarizing arguments in Boilerplate, “it follows that they aren’t consented to in any traditional sense; there is no meeting of the minds between the parties.” The “moral basis” for using state power to enforce contracts is lacking in the case of boilerplate, because mutual agreement of the parties is the justification for using “the power of the state to enforce the transfer of one person’s property to another . . . “ But in the case of boilerplate, mutual agreement must be a legal fiction. Furthermore: “The party that constructs the boilerplate makes a kind of private legal system that displaces the public one.”
Prof. Nagel, however, suggests that the contractual treatment of boilerplate may be a useful legal fiction, and that “our bewilderingly complex political system exhibits many contradictions more alarming than the tension between boilerplate and the rule of law.” He asks rhetorically: “Can it be that real, bargained-for contracts remain an important practice and ideal because boilerplate removes so many transactions from the realm of law?”
As a first-year law student, I took Peggy Radin’s real property class at UCLA, and have fond memories of spending the first six weeks reading bewildering cases about foxes, hunters, possession, ownership, and opaque forms of action. All the best, Prof. Radin, and congratulations on the publication of Boilerplate.