How Liberal And Conservative Justices On The US Supreme Court Have Parted Ways Over Arbitration Cases.
My article entitled, "The Politics of Arbitration", appears in California Litigation, The Journal of the Litigation Section, State Bar of California, Vol. 29, No. 3, 2016. As my article explains, arbitration has become one more "hot button issue" for the U.S. Supreme Court Justices to disagree about. The article is republished here with the permission of the California State Bar.
Mark D. Gough’s Study Seeks To Correct For Systematic Differences In Case Characteristics Between Arbitral And Court Forums.
Back on August 19, 2014, I posted about Mark D. Gough’s study of arbitration outcomes arising from his research comparing employment discrimination cases heard in arbitration and civil litigation. At the time, I couldn’t find his study on-line. Good news: it is now available on-line. And here’s a citation: Mark D. Gough, The High Costs of an Inexpensive Forum:An Empirical Analysis of Employment Discrimination Claims Heard in Arbitration and Civil Litigation, 35 Berkeley J. Emp. & Lab. L. (2015).
I was most curious to see how Dr. Gough compared cases in litigation with cases in arbitration, because there are a lot of variables to take into account: “claim amount, award amount, winning party, employee salary, alleged discriminatory action, whether a motion for summary judgment was filed, defendant size, and the attorney’s fee arrangement, among other variables.”
Given that employees win less often and obtain smaller awards in arbitration than in litigation, might this be explained by the fact that the arbitration cases are weaker, that summary judgment is used more often in litigation to winnow out weak cases, that arbitration claims are smaller, that the arbitration clauses are less likely to be individually negotiated, or some combination of factors?
After making heroic efforts to compare apples to apples, Dr. Gough’s bottom line is that in contemporary employment discrimination cases, arbitration outcomes “are starkly inferior to outcomes reported in litigation.” After taking into consideration whether cases survived summary judgment, how the plaintiff’s attorney evaluated the case, plaintiffs’ salaries, employer size, and the discriminatory claims, Gough concludes that inferior outcomes in arbitration cannot be explained by systematic differences in case characteristics between the two forums. Thus, the difference is not in the cases, but in the forums. While the arbitral forum may be relatively “inexpensive”, Dr. Gough’s study concludes that mandatory arbitration in employment discrimination cases costs employees dearly.
Judges, arbitrators, employers, and employees can draw their conclusions. Employers who have embraced arbitration and employees who have challenged mandatory employment arbitration clauses in courts have already drawn their conclusions.
In May 2016, I posted on the then unpublished case Baxter v. Rock, and posted later that the case was partially published. 247 Cal.App.4th 775 (2016). Relying on the case, I pointed out that an arbitrator’s mistake about an attorney’s fees award was no basis for overturning the award under California’s Mandatory Fee Arbitration Act, but that a judge’s error in assigning different hourly rates to two attorneys, without a reasonable basis for doing so, was subject to a different standard of review, and could be more easily reversed – as it was.
The case, however, was also important for what it said about arbitrator disclosures. The arbitrator who failed to disclose prior experience auditing attorney’s fees, could not be later disqualified in an attorney fee arbitration held under the MFAA. Just because the arbitrator had experience auditing attorney’s fees did not necessarily mean that the arbitrator was biased for or against the attorney or the client.
Mary A. Dannelley, Esq. has written an article about the disclosure requirements discussed in Baxter v. Rock, published in Orange County Lawyer (November 2016), and entitled, “The Message from Baxter v. Rock: Vet Your Fee Arbitrator Early.”
Here are three takeaways from this helpful article:
“arbitrators are required to disclose: (a) connections to the parties, the facts, or the events at issue in the fee dispute; and (b) business activities of an attorney arbitrator (including the nature of his or her law practice) that would create an economic incentive to rule in favor of one party over the other.”
the arbitrator should disclose the arbitrator’s practice as an attorney if it is focused on a particular area related to the subject matter of the litigation such that it would provide the arbitrator with an incentive to rule in favor of one side rather than the other.
vet your arbitrator early, because post-arbitration challenges to the sufficiency of disclosures will be viewed by the courts with a gimlet eye.
In his August 28, 2016 post, Prof. Kenneth Jost suggests, as I did in my August 23, 2016 post about Morris v. Ernst & Young, that the split among the circuits concerning the enforceability of employment contract clauses requiring disputes to be resolved through individual arbitration is likely to be headed to the Supreme Court for resolution --especially after the Ninth Circuit panel neatly framed the split with majority and dissenting opinions in Morris.
But Jost goes one step further, drawing a parallel between the contemporary arbitration clause intended to stop concerted activity by employees and the notorious “yellow-dog contracts” of yesteryear, prohibiting employees from joining unions.
The Maryland Judiciary has commissioned research to be conducted by independent researchers on the efficacy of mediation with small claims-type cases. The research claims to be “the only research in the country that compares the attitudes and changes in attitudes of participants who went through ADR to an equivalent comparison group who went through the standard court process.” The research also examines the long-term and short term effects of employing different mediation strategies, such as reflecting back the emotions and interests of the participants, and eliciting solutions, offering solutions, and caucusing.
The research showed significant benefits for those who went through the ADR process. Participants were more likely to resolve all their issues. They had an increase in their rating of their level of responsibility for the situation. Participants were more likely to be satisfied with the judicial system than others. They were more likely to emerge with a better attitude toward the other side, and with a higher satisfaction with the outcome.
The study also found interesting results regarding the strategies employed by mediators. In the short run, reflective strategies seemed to make participants feel more positive, though such strategies seemed not to have a statistically significant effect in any positive or negative outcomes. Frequent caucusing correlated with lower satisfaction, and with a higher likelihood of return to court. Also, “eliciting strategies” – asking participants to suggest solutions, summarizing the solutions, and asking them how the solutions would work for them – were strategies associated with a lower rate of return to court in the long run. Being directive by offering solutions was a less successful strategy than eliciting solutions.
Query whether reflecting back the emotions of participants, keeping them all in the same room without caucusing, and avoiding evaluation and directive solutions will work with equal success in more complex mediations.
The Subjects Are Appellate Mediation And Mediating Employment Disputes With Small Business Owners.
The July 2016 edition of Orange County Lawyer includes two worthwhile articles about mediation.
Rethinking the Impossible: Appellate Mediation.
By the time a case is on appeal, many attorneys and their clients view a case as far beyond the point of settlement. However, Kerry W. Franich, an attorney in Severson & Werson’s appellate practice group, emphasizes the benefits of appellate mediation. A judgment may provide an opportunity for revisiting settlement negotiations.
The opportunities presented by appellate mediation often flow from the passage of time: decision makers may have changed, parties may have changed, litigation objectives may have changed, and the law may have changed. In short, the door to settlement may not be shut.
COMMENT: Nevertheless, appellate mediation does not have as high a settlement rate as does mediation at the trial court level. Do any of my readers have statistics on settlement rates for appellate mediation?
We would add that a significant motivator for engaging in appellate mediation ought to be the rate of reversal on appeal in California. “With an overall statewide reversal rate of 36% in civil cases, an appeal does not necessarily end the litigation process – it may be only another step in a seemingly endless and costly road to resolution.” Hon. Jeff Kaplan (Ret.), “Practical Considerations for Post-Trial and Appellate Mediations,” Advocate (Fall 2013).
Reaching for Understanding: Mediating Employment Disputes With Small Business Owners.
David Ezra,an attorney with a practice focusing on ADR, insurance and employment law,considers the attributes of small business owners that “can make the mediation process especially challenging.” Mr. Ezra points out that small business owners are accustomed to making decisions with “no opportunity for consensus building or a second opinion.” Additionally, relationships in a small business can be highly personal and emotionally charged. “The mediator,” Mr. Ezra counsels, “needs to resist passing judgment.”
Mr. Ezra offers useful suggestions for dealing with the small business owner in mediation – and perhaps he will follow up someday with suggestions for helping the employee through the mediation process.
San Francisco-Based Mediator And Arbitrator Paul Dubow Has Reported On 18 California And Ninth Circuit Cases Related To ADR.
In the 2015 Edition of the California Litigation Review, published by the Litigation Section of the State Bar of California, Paul Dubow has reported on “interesting and significant opinions relating to ADR particularly in the area of arbitration.” Having blogged for several years now on California mediation and arbitration cases, I note that the courts write far more opinions about arbitration than about mediation, a fact reflected by Mr. Dubow’s excellent report. Here are the 18 cases that Paul Dubow has reported about, with links to my blog posts on 14 of the cases:
1. DirectTV, Inc. v. Imburgia, ___ U.S. ___, 136 S. Ct. 463 (2015) (“law of your state” meant valid law after considering FAA preemption, resulting in enforcement of arbitration provisions.) December 15, 2015 post.
3. Khalatian v. Prime Time Shuttle, Inc., 237 Cal.App.4th 651 (2015) (14-month delay in bringing motion to compel, absent showing of prejudice, did not result in waiver of right to arbitrate). June 9, 2015 post.
5. Franco v. Arakelian Enterprises, Inc., 234 Cal.App.4th 947 (2015) (rulings in Concepcion and Iskanian require reversal and remand to trial court of orders denying employer’s petition for arbitration, while preserving employee’s rights to prosecute PAGA claims in a non-arbitration forum.) February 26, 2015 post.
10. Carlson v. Home Team Pest Defense, 239 Cal.App.4th 619 (2015) (affirming order denying employer’s motion to compel arbitration, on grounds that the arbitration provisions were procedurally and substantively unconscionable.) October 20, 2015 post.
11.Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (incorporation of AAA rules meant there was a clear delegation of authority to arbitrator to decide arbitrability questions).
13. Richey v. Autonation, Inc., 60 Cal.4th 909 (2015) (possibility that defendant violated plaintiff’s statutory rights did not require vacating arbitrator’s award, because defendant legitimately fired plaintiff for violating company policy). January 29, 2015 post.
14. SingerLewak LLP v. Gantman, 241 Cal.App.4th 610 (2015) (accounting firm’s award against departing partner for violating covenant not to compete did not violate public policy where arbitrator found implicit geographical limitation) (ordered published by Supreme Court). October 22, 2015 post.
15. Ramos v. Westlake Services, Inc., 242 Cal.App.4th 674 (2015) (fraud in execution of arbitration agreement where car dealer provided misleading translation of service agreement to Spanish speaker). November 29, 2015 post.
16. Miranda v. Anderson Enterprises, Inc., 241 Cal.App.4th 196 (2015) (“death knell” exception allowing for immediate appeal of order granting motion to compel arbitration, applied to PAGA representative claims).
17. Cobb v. Ironwood Country Club, 233 Cal.App.4th 960 (2015) (retroactive effort by country club to compel arbitration by including arbitration clause in bylaws after suit was filed against it fails). February 1, 2015 post.
18. Amis v. Greenberg Traurig LLP, 235 Cal.App.4th 331 (2015) (malpractice claim fails because attorney’s advice was given in context of mediation and is inadmissible; even inference that settlement agreement was signed based on attorney’s advice was inadmissible). March 19, 2015 post.
“Have We Lost A Constitutional Right In The Fine Print?”
On the November 12, 2015 edition of Fresh Air, Dave Davies interviews New York Times reporter Jessica Silver-Greenberg, co-author of the New York Times Special Report on arbitration. I have blogged about the series, as well as the retort by the U.S. Chamber of Commerce, in November 1, 2 and 5, 2015 posts. Now you can learn the gist of the report by listening to the interview with Jessica Silver-Greenberg.
On November 1 and 2, I reported on the NYT Special Report about arbitration – articles highly critical of the spread of arbitration. While the report is one-sided in its approach, it does serve to highlight the revolution that is quietly occurring in our legal system, as arbitration clauses become increasingly widespread – and enforceable – in employment law, and consumer law.
Predictably, the U.S. Chamber of Commerce has not taken the attack on arbitration lying down. In a spirited defense of arbitration, the U.S. Chamber describes the NYT investigation as “little more than an opinion piece masquerading as fact. . . . incomplete, misleading, and one-sided . . . underscored by the article’s resort to innuendo about the ethics of a Supreme Court Justice . . . “
COMMENT: U.S. Chamber of Commerce v. NYT is only the latest sign that the role to be played by arbitration in the American legal system is now highly politicized. The fault lines are apparent in the liberal/conservative split in SCOTUS arbitration decisions, and the polarization in the statements of labor and consumer versus business interests.
Yesterday I reported that the New York Times has kicked off its special report on arbitration with Part I, an article entitled “Arbitration Everywhere, Stacking the Deck of Justice.” The NYT has now moved on with Part II, “Privatizing Justice,” and Part III, “In Religious Arbitration, Scripture Is The Rule Of Law.”
The article on privatizing justice presents a litany of problems with arbitration. Though the article does not exactly describe what “privatizing justice” means, it circles around certain aspects of arbitration: the loss of judges and juries, the secretive nature of arbitration in a system where cases need not be reported and proceedings are confidential, the common perception that unlike judges, arbitrators are “beholden to companies” that are their real clients, and the inability to effectively appeal bad awards. The authors’ point of view appears to be that if sunlight is the best disinfectant, then arbitration is a black hole.
The article on religious arbitration presents some interesting examples involving Christian arbitration, as well as Scientology arbitration. The article points out that in addition to the usual inability to review arbitration awards for mistakes of law or fact, judges will not review religious arbitration awards for fear of church-state entanglement issues.