Multi-Stage Negotiation Materials on DRLE Website

John Lande continues to build out the DRLE website with useful information. The most recent addition is a section of the website devoted to multi-stage simulations, with classroom exercises, role plays, and a variety of other materials for those interested in incorporating or expanding their use of multi-stage simulations.

Here’s John:

Probably most of us use a lot of single-stage simulations, where students enact one part of a process, such as the negotiation or mediation of the ultimate issues in a case.  Single-stage simulations provide multiple opportunities for students to enact different roles and focus on different issues.  A disadvantage is that these simulations usually are fairly brief and thus students may have a hard time getting into their roles and simulating realistic dynamics.

Multi-stage simulations make it easier for students to get into their roles, enable them to deal with more complex situations, focus on specific stages in a process, see the connections between various stages, and generally have a more realistic experience.  In my classes, the quality of the interactions and student learning seemed to be exponentially higher than in the single-stage simulations.  Of course, they take more time and there haven’t been many multi-stage simulations available.

There are advantages and disadvantages to both types of simulations and there is value in using both types in a course.

As you plan your courses for the fall, you might take a look at the material on the website and consider whether you want to use these materials and ideas in your courses.  There is no standard format of these materials and you may want to read descriptions of various simulations even if you aren’t interested in the particular subject.  For example, Susan Exon’s material includes detailed instructions for a student assignment, Lauren Newell’s material describes several variations she is considering, and Andrea Schneider’s material includes debriefing questions.

There are virtually an infinite number of ways you could do this, depending on the subjects of the cases, the skills you want to focus on, and the logistics, among other things.  For example, some of these simulations involve client interviewing, developing relationships with counterpart lawyers, planning for discovery, legal research, planning for and conducting negotiation or mediation, and writing settlement agreements, among others.  Some simulations have only two stages and others have more. Students can do some of the activities outside of class, thus preserving valuable class time.

I am very grateful to our colleagues who wrote the following descriptions of their simulations.  If you want to get their materials or advice, please get in touch with them using the emails in each document. I would like to add more material to the website, so if you use a multi-stage simulation, I invite you to write up your description and advice to post on the website. As you will see, these are pretty brief, so it shouldn’t take a lot of time to read them.

 

Suggestions for Using Multi-Stage Simulations in Law School Courses – John Lande, University of Missouri

Various Multi-Stage Simulations – Alyson Carrel, Northwestern University

Probate Dispute Simulation – Sarah Cole, Ohio State University

Employment Dispute Simulation (whistleblower retaliation) – Ellen E. Deason, Ohio State University

Employment Mediation Simulation (constructive discharge) – Susan Nauss Exon, University of La Verne

Negotiation and Drafting Simulations – Paul F. Kirgis, St. John’s University

Dispute System Design (court rule requiring good faith in mediation) – John Lande, University of Missouri

Divorce Simulation (property and child support) – John Lande, University of Missouri

Divorce Simulation (domestic violence) – John Lande, University of Missouri

Employment Discrimination Simulation (national origin) – John Lande, University of Missouri

Partnership Agreement Negotiation Simulation – John Lande, University of Missouri

Probate Dispute Simulation – John Lande, University of Missouri

“DONS” Simulation – Lauren A. Newell, Ohio Northern University

Generic Mediation Simulation – Bob Randolph, Carr, Swanson and Randolph, LLC

Divorce Simulation (parent relocation) – Andrea Schneider, Marquette University

Labor-Management Collective Bargaining Simulation – Sandra Sellers and Jane Juliano, Georgetown University

 

 

Works-in-Progress Conference Registration

Registration is now open for the AALS ADR Section’s Eighth Annual Works-in-Progress Conference, which will take place this November at Southwestern Law School in Los Angeles.  The Conference will begin with a welcoming reception hosted by Southwestern on the evening of Thursday,November 6.  Friday, November 7 will feature a full day of presentations, along with continental breakfast, luncheon and dinner hosted by Southwestern.  The Conference will conclude on Saturday, November 8 with a half-day of presentations, as well as continental breakfast and lunch hosted by Southwestern.

The Works-in-Progress Conference has traditionally provided a welcoming and interactive forum where ADR scholars from across the country can share their current research, obtain feedback, exchange ideas, reconnect with colleagues and build new collaborative working relationships.  At the Conference, junior and senior ADR scholars present their current work-in-progress, ranging from research ideas for a future article to full draft papers. Conference attendees share their insights about the presentation topic and offer constructive feedback to the presenter.

To register as a presenter or attendee, or to get more information about the Conference, please go to www.swlaw.edu/adrwip.   There is no registration fee (presenters and attendees are responsible for their own travel and lodging expenses).  We hope to see you at the Conference in November.

Gilles & Sebok on Crowd-Classing Individual Arbitrations

In a new article published as part of DePaul Law School’s excellent annual Clifford Symposium on Tort Law & Social Policy, Miriam Gilles and Tony Sebok take up the subject of Crowd-Classing Individual Arbitrations in a Post-Class Action Era. They suggest that enterprising plaintiffs’ attorneys have two potentially viable avenues for making it financially viable to pursue multiple small claims in the teeth of widespread arbitral class waivers. First, arbitration-free plaintiffs could be recruited to litigate test-cases, with favorable judgments used to support future arbitrations. (The authors suggest that the major arbitration providers will have to modify their rules to provide for some degree of issue preclusion and/or precedent-recognition in the face of large numbers of individually-brought claims.) Second, “arbitration entrepreneurs” could purchase numerous small claims and bring them as separate claims, but in a single arbitration proceeding. (Again, the authors suggest the providers will have to provide for some mechanism of consolidation of claims if they begin to see large numbers of small claims brought.)

The limitation on crowd-classing will be finding claimants. I was recently speaking with a partner at a New York City firm that represents AT&T, among other companies that have used arbitration agreements to stifle class action litigation. He told me that they are starting to see efforts by plaintiffs’ attorneys to collect lots of individual small claims and pursue them as separate arbitrations. So far, however, the strategy is just a ripple on the surface of the claims pool, because of the difficulty plaintiffs’ attorneys have in identifying and recruiting genuine, live human beings as claimants. He told me that when they actually looked into the claims, they often found problems with the claimants (dead, unaware of the claim, etc.).

Perhaps the magic of social media will make it possible to identify and recruit claimants on a scale large enough to make crowd-classing viable. But given the reality that many people who are entitled to a benefit as a result of class action litigation never bother to claim it, it seems unlikely that large numbers of people will consistently respond to calls to pursue or assign claims, even if some small benefit is offered.

 

Works in Progress Conference – Save the Date

The AALS Section on Alternative Dispute Resolution is delighted to announce that Southwestern Law School will host the Eighth Annual ADR Section Works-in-Progress conference. The conference will take place at Southwestern’s campus in Los Angeles on Friday, November 7 and Saturday, November 8, with a welcoming reception on Thursday night, November 6 for early arrivals.

Details about conference registration and submission logistics will be provided soon.

Zimmerman & Remus on Mass Settlements

Adam Zimmerman has been doing ground-breaking work on mass settlements for several years now, and he has two new articles, one done with Dana Remus, that extend those investigations into new areas. The first is titled Presidential Settlements, 163 U. Pa. L. Rev. _ (forthcoming 2015) (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414748). Here’s the abstract:

Large groups repeatedly turn to the White House to collectively resolve complex disputes, much like a class action. Such presidential settlements go back at least as far as the early republic, as well as the Progressive Era, when Teddy Roosevelt famously brokered settlements among private groups following a rash of accidental injuries and deaths in mining, rail, and even, football. More modern variants include mass compensation schemes like the Holocaust Victim Settlement, Pan Am Flight 103 Settlement, and the BP Oil Spill Settlement brokered by Presidents Clinton, Bush and Obama. In each case, the President helped resolve a sprawling class action-like dispute among warring parties, while also advancing a broader executive agenda. Just as the President has extended power over the administrative state, presidential settlements demonstrate the growth of executive authority in mass dispute resolution to provide restitution for widespread harm.

 

But this use of executive power creates problems for victims purportedly served by presidential settlements. When the President settles massive private disputes, he resolves them like other forms of complex litigation, but without the judicial review, transparency, and participation thought necessary to resolve potential conflicts of interests among the victims. The Presidents’ other duties as the Chief Executive also aggravate conflicts with groups who may rely entirely on such settlements for relief.

 

This Article recommends that the President adopt complex litigation principles to reduce conflicts of interests, to increase transparency, and to improve public participation in White House driven settlements. Envisioning the President as the “Settler-In-Chief,” this Article also raises new questions about how the coordinate branches of government, as well as actors inside the White House, may regulate executive settlement practice consistent with the Separation of Powers.

The second is titled The Corporate Settlement Mill, 101 Va. L. Rev. _ (forthcoming 2015)(w/ Dana Remus) (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414754). Here’s the abstract:

From cases involving “robo-signed” mortgages to catastrophic oil spills, the United States legal system increasingly encourages corporate wrongdoers to design and implement their own high-volume settlement programs to compensate thousands of unrepresented victims. These private settlement systems rely on corporate economies of scale to resolve massive disputes as comprehensively as a class action, but entirely outside of the court system. We call these systems “corporate settlement mills.”

 

Like class action settlements and “no fault” insurance options, corporate settlement mills may ameliorate many of the most commonly criticized features of individualized litigation. They offer redress to people who often cannot afford counsel, handle large volumes of claims quickly and predictably, and reduce court congestion. For those reasons such programs are increasingly required by federal laws, regulatory bodies and as a matter of complex litigation practice.

 

But corporate settlement mills also have a dark side. When sophisticated corporate actors quietly settle large numbers of cases in assembly-line fashion, they threaten transparency, fair dealing, and the rule of law. We argue that this new category of dispute resolution is more dangerous than others because a single, self-interested party—the prospective defendant itself—designs and oversees the entire determination process. Corporate settlement mills thus raise fundamental questions about how far policymakers may go to privatize our public, and historically neutral, system of adjudication.

 

Drawing lessons from other movements to privatize government, we argue that corporate settlement mills can provide an appropriate alternative to public adjudication as long as they remain answerable to the regulators, courts, and claimants that rely on them. We therefore offer specific suggestions to make them more accountable—including targeted prospective regulation, judicial review, stakeholder participation, and ethical reform. In so doing, we broaden the debate over what constitutes mass litigation, in the hope that lawmakers realize the benefits of large private settlements, without frustrating administrative regulation or the judiciary’s authority to “say what the law is.”

ADR Writing Competitions

It’s the season of student writing competitions, so I thought I would collect information here for those with students writing papers on ADR topics this spring. I’m aware of the following two competitions specifically devoted to ADR. Please feel free to add any I’ve missed in the comments.

ACR Student Writing Competition. Papers must be 10-20 pages on any topic; $500 prize.Winners of the writing competition will be invited to present their work at the the 2014 ACR-GNY Annual Conference, which is being held on June 19, 2014 at the Benjamin N. Cardozo School of Law in New York City. Entry deadline is April 30, 2014.

James R. Boskey Law Student Essay Contest on Dispute Resolution. Papers must be 15-25 pages on any topic; $1000 prize and posting of the winning essay and runner-up online. Entry deadline is June 13, 2014.

Denial of Certiorari in Delaware Chancery Arbitration Case

The Supreme Court has denied certiorari in Delaware Coalition for Open Government v. Strine, in which the Third Circuit struck down Delaware’s scheme allowing parties with cases before the Delaware Court of Chancery to pay an extra fee to have their matters heard by a Chancery judge sitting in the guise of an arbitrator.

The Third Circuit’s decision was based on the First Amendment right of public access to judicial proceedings. As I discussed in a previous post on the case, however, in my view the more important principle is that all litigants have access to the same justice at the same price. The chancery arbitration scheme would have allowed wealthy corporate litigants to buy a fast-tracked and private adjudicative process–before sitting state court judges–denied to those who could not afford the five-figure fees required. The denial of certiorari puts a welcome end to a misguided judicial experiment.

Bargaining with Consequences

I’ll be presenting my article Bargaining with Consequences: Leverage and Coercion in Negotiation tomorrow (Friday, February 27, 2014) at the Quinnipiac-Yale Dispute Resolution Workshop at Quinnipiac University School of Law. Here’s the abstract to the article, which will be published later this spring in the Harvard Negotiation Law Review:

Leverage has been called “negotiation’s prime mover,” conferring power to reach agreement “on your terms.” This power, however, is not always benign. When a negotiator has sufficient power to compel a counterparty to accept a set of unfavorable terms, the use of leverage may cross a line into inappropriate or illegal coercion. While coercion has been the subject of rich philosophical investigation, the topic of coercive power has received only cursory treatment in the negotiation literature. This article seeks to fill that gap by analyzing the uses and limits of negotiating leverage, which I define as power rooted in consequences. I identify two types of leverage—positive and negative—and explore the legal and ethical implications of each type, drawing on the political theory of coercion as well as primary and secondary legal sources. I conclude by analyzing the contract doctrines of duress and unconscionability to show how an understanding of leverage can aid in the application of legal rules.

I welcome comments on the article and look forward to seeing colleagues who are able to attend the workshop.

Call for Proposals – 2014 Works in Progress Conference

Request for Proposals
Hosting the AALS Alternative Dispute Resolution Section
2014 Works-in-Progress Conference

 The AALS Alternative Dispute Resolution Section is seeking a host for the 8th Annual Works-in-Progress Conference to take place in the fall of 2014.  The WIP Conference has become one of the “must attends” in the ADR academic field.  Previous hosts include Marquette, Arizona State, Harvard, Oregon, Creighton, Ohio State, and Cardozo.

The host institution is responsible for organizing all of the logistics for the conference, such as picking dates, lining up hotels, and scheduling receptions and presentations.  Additionally, the conference host is responsible for choosing the papers to be presented.

The Section’s Executive Committee will consider several criteria in selecting the next host institution, including:

  • Proximity to a major airport and reasonably-priced hotels
  • Planned outreach to attract junior faculty
  • Planned or demonstrated outreach to attract law faculty from regional law schools
  • Demonstrated engagement with the ADR academic community
  • Indications of institutional support for the conference (e.g., funds for meals, sufficient staffing)
  • Planned mechanisms to enhance the rigorous yet collegial atmosphere of the program; factors to be considered include:
    • Schedule and structure (number of days, length of presentations, one track or multiple tracks, etc.)
    • Methods for ensuring that presenters receive quality feedback
  • Demonstrated experience with hosting similar events
  • Any special circumstances that support an institution’s application

Proposals should be sent electronically to Professor Paul Kirgis, 2014 Chair of the ADR Section, at kirgisp@stjohns.edu by March 1, 2013.  In the transmittal e-mail subject matter line, please put “AALS ADR Section WIP Conference Proposal.”  If you have any questions, please contact Paul Kirgis at the e-mail address listed above.  We look forward to hearing from you!

AALS Annual Meeting Update

The AALS Section on Dispute Resolution hosted a panel on ADR and the Regulatory State at the Annual Meeting in New York on January 4, 2014. I moderated the panel, which featured Jeffrey Lubbers (American), Maureen Weston (Pepperdine), and Nancy Welsh (Penn State). Adam Zimmerman and Dana Remus were selected to participate from a call for papers, but missed the conference because of the weather disruptions that kept so many from attending.

The panel addressed four themes involving the intersection of ADR and administrative law. Professor Lubbers discussed the ways in which administrative agencies use ADR in performing their regulatory functions. I then read remarks provided by Professors Zimmerman & Remus, who discussed the “outsourcing” of dispute resolution by agencies to private actors in the form of defense-side “settlement mills.” Professor Weston discussed preemption of agency decisionmaking involving arbitration. Professor Welsh considered the social justice and procedural justice issues that cut across ADR and agency decisionmaking.

I will serve as Chair of the Section on Dispute Resolution this year, taking over from the able hands of Jen Reynolds (Oregon). Sarah Cole (Ohio State) was elected Chair-Elect.

Our first order of business in the new year will be to solicit bids to host the 2014 Works-in-Progress Conference, hosted in 2013 at Cardozo. If you are interested in hosting, keep an eye out for the call for proposals, which will be issued in the coming weeks.

CFPB Preliminary Results on Study of Arbitration Clauses in Consumer Financial Contracts

The Consumer Financial Products Board has issued preliminary findings from its study of arbitration clauses in consumer financial contracts. The results will not surprise anyone who follows this area. The CFPB found that large banks are much more likely than small banks to include arbitration clauses, but that because of their market share, around 50% of credit card loans and 44% of insured checking account deposits are covered by arbitration agreements. (The numbers would be far higher but for the NAF settlement, under which many issuers removed arbitration clauses from their contracts.) The percentages are much higher for prepaid cards.

Ninety percent of the arbitration agreements studied include class waivers. Most contain small-claims court carve outs. The banks are far more likely than the consumers to go to small claims court. That makes sense. For small debts, a collection action in a small claims court will usually lead to a default judgment, which is then immediately enforceable. Arbitration requires two steps, the arbitration proceeding and then the filing of the award.

Out of these millions of agreements, only about 300 arbitration claims have been filed by consumers per year over the last three years, and they were all for high dollar-value claims (more than $1,000). There are a number of possible explanations for the low figure. It is possible that market forces are sufficient incentive to keep banks from harming consumers, so there are very few claims to be pursued. It is also possible that banks are resolving small consumer claims informally, so consumers have no need to pursue arbitration when they have a claim. And it is possible that individual arbitration is simply not a viable way for consumers to pursue claims against banks.

Here’s the CFPB press release, with a link to the full report:

CONSUMER FINANCIAL PROTECTION BUREAU FINDS FEW CONSUMERS FILE ARBITRATION CASES

About 9 Out of 10 Arbitration Clauses Prevent Consumers from Participating in Class Actions

 WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau released preliminary research on the use of arbitration clauses in connection with consumer financial products and services. The research indicates that arbitration clauses are commonly used by large banks in credit card and checking account agreements and that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions. The research also shows that while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.

“Many contracts for consumer financial products and services contain arbitration clauses,” said CFPB Director Richard Cordray. “Today’s preliminary results help us better understand how these clauses are affecting consumers’ financial lives so that we can ultimately determine whether action should be taken for their greater protection.”

The results of today’s study are available at: http://files.consumerfinance.gov/f/201312_cfpb_arbitration-study-preliminary-results.pdf

Arbitration is a way to resolve disputes outside the court system. Many contracts for consumer financial products and services contain a “pre-dispute arbitration clause” stating that either party can require that disputes about that product or service be resolved through arbitration, rather than through the court system.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Bureau first launched a public inquiry on arbitration clauses in March 2012. The Dodd-Frank Act also gives the Bureau the power to issue regulations on the use of arbitration clauses if the Bureau finds that doing so is in the public interest and for the protection of consumers.

The preliminary results of the study provided by the CFPB are based on a review of hundreds of consumer contracts, as well as on filings from the American Arbitration Association (AAA). Based on the CFPB’s research, the AAA is the predominant administrator of consumer financial arbitrations in the markets covered by the study to date. The CFPB looked at AAA filings about credit cards, checking accounts, payday loans and prepaid cards between 2010 and 2012. The CFPB observed that fewer than 1,250 consumer arbitrations about those four products were filed. Many of these concerned debt collection.

CFPB research indicates that consumers filed around 900 of these disputes. The remaining disputes are filed by companies or submitted by both sides together. In comparison, in that same three-year time period, over 3,000 cases were filed by consumers in federal court about credit card issues alone. More than 400 of these federal court cases were filed as class actions, whereas CFPB’s research found only two class filings in arbitration and neither was about credit cards.

Other preliminary results for the markets the CFPB has studied include:

  • Larger institutions are most likely to use arbitration clauses. The CFPB’s preliminary results indicate that larger institutions are more likely than community banks or credit unions to include an arbitration clause in consumer contracts for credit cards or checking accounts. For example, while the CFPB estimates that only 7.7 percent of banks use arbitration clauses for their checking accounts, 62 percent of the top 50 banks have arbitration clauses in their checking account contracts. With respect to prepaid cards, however, arbitration clauses are seen more uniformly across almost every consumer contract.
  • Arbitration clauses are more complex than the rest of the contract. The CFPB’s preliminary results indicate that, in credit card contracts, the arbitration clause section of the contract was almost always more complex and written at a higher grade level than the rest of the contract.
  • Around 9 out of 10 arbitration clauses expressly bar consumers from filing class arbitration. In the contracts the Bureau studied, around 90 percent of the arbitration clauses specifically bar consumers from filing class arbitrations. The few clauses without this provision were in smaller bank contracts. This means that, for the products the CFPB studied, almost all of the market that is subject to arbitration is also subject to terms that effectively preclude class actions in court or in arbitration.
  • Consumers do not choose arbitration over class action settlements. While its study of class actions remains ongoing, the Bureau has already identified a number of class actions involving credit cards, deposit accounts, or payday loans in which the contract allowed for arbitration before the AAA. More than 13 million class members made claims or received payments under these settlements, while 3,605 individuals opted out of participating in the settlements, which gave them the right to bring their own cases. At most, only a handful of these individuals chose instead to file an arbitration case.
  • Consumers do not file arbitrations for small-dollar disputes. In looking at the data, the Bureau observed that almost no consumers filed arbitrations about disputes under $1,000. For arbitration filings involving debt disputes, the average amount of debt at issue was over $13,000. For other arbitration filings, the average consumer claim was for over $38,000.
  • Few consumers file small claims court actions. A number of arbitration clauses allow a consumer, and sometimes the company, to use small claims courts rather than arbitration for dispute resolution. The CFPB’s preliminary analysis indicates that not many consumers initiate small claims court cases in credit-card disputes. Rather, the analysis shows that small claims court cases are much more likely to be brought by banks than by consumers. In the states and counties studied, the Bureau was able to identify at most 870 credit card cases brought by consumers in small claims court against large credit card issuers, but more than 41,000 cases brought by these banks against consumers in small claims court.

For the second phase of the Bureau’s study, the CFPB intends to look at a number of areas, like whether consumers are aware of the terms of arbitration clauses and whether arbitration clauses influence consumers’ decisions about which consumer products to purchase.

Third Circuit Rejects Delaware Chancery Arbitration Scheme

The Third Circuit has affirmed the District Court decision striking down Delaware’s Chancery Arbitration scheme in Delaware Coalition for Open Government v. Strine. Like the District Court, the Third Circuit applied the “experience and logic test” to conclude that the First Amendment confers a right of public access to the Chancery arbitrations because there has been “a traditional of accessibility” to that type of proceeding and because “access plays a significant positive role in the functioning of the particular process in question.”

While I agree that the First Amendment should be understood to require openness for the proceedings contemplated by the Chancery arbitration scheme, I see the case raising even more fundamental questions about the rule of law and access to justice. The Chancery arbitration program effectively allowed well-heeled corporate litigants to buy an improved version of the normal state-run dispute resolution process. For the modest sum of $12,000 up front and $6,000 per day, a corporation with a million-dollar claim could procure a decision by a sitting judge, but with a streamlined process and complete secrecy. The scheme thus created a two-track system of justice with a privileged place for wealthy corporate claimants.

Wealthy corporate litigants are and should be free to settle their disputes privately, employing private arbitrators. They should not be able to cloak the judicial process with an arbitration veneer in order to buy premium treatment behind a wall of secrecy.

The Most Recent Example of Arbitration Overreach

Paul Bland has a compelling post on the Second Circuit’s recent decision in Duran v. The J. Hass Group, in which the court enforced an arbitration agreement requiring a consumer from New York, who alleged she was defrauded of almost $4000, to arbitrate in New Mexico.

Paul’s summary:

This strategy worked pretty well for the defendants in this case.  The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona.  They noted that there is a “logical flaw” and an “unusual” quality to the result, because if Ms. Duran’s only remedy is to argue to the arbitrator that it’s unfair and unconscionable to require her to arbitrate in Arizona, she first has to GO to Arizona to do it.  Oh well, the Court explains, this is what the Supreme Court would have wanted.

I think the decision is wrong, and that the better arguments are with the plaintiffs, and I’m very hopeful that a lot of other courts wouldn’t go with this conclusion.

But the case does show how the U.S. Supreme Court’s ongoing adventures in re-writing and expanding the Federal Arbitration Act have a cost.  What will the next scam artist put in their arbitration clause?  Is there any reason that the Second Circuit would not have enforced a clause requiring the arbitration to take place in New Zealand on Leap Day?  After all, why couldn’t the New Zealand arbitrator figure out if that’s fair?  What if the arbitration clause required that the arbitration take place on the newly non-planet Pluto?

Call for Papers – AALS ADR Section – Sept. 5 Deadline

Just a reminder that the deadline for responding to the call for papers for the AALS Section on Alternative Dispute Resolution program at the 2014 Annual Meeting in New York is September 5, 2013. The program topic is ADR and the Regulatory State. The author of the selected paper will join our esteemed colleagues Nancy Welsh and Maureen Weston as well as Jim Rossi and Jeffrey Lubbers from the Ad Law Section on the panel.

For more details of the program and the call for papers, see my earlier post here.

Submissions may be sent directly to me at kirgisp@stjohns.edu.

Stipanowich on Delaware Chancery Arbitration

In May, the Third Circuit heard oral arguments in Delaware Coalition for Open Government v. Stine, the case challenging the constitutionality of Delaware’s chancery arbitration scheme (see my previous commentary on the program here, here, and here.) A federal court had found the scheme unconstitutional on grounds that it violated the public’s First Amendment right of access to court proceedings. Tom Stipanowich (Pepperdine) has now posted In Quest of the Arbitration Trifecta, or Closed Door Litigation?: The Delaware Arbitration Program on SSRN. He concludes that the scheme is unprecedented in its blending of the public judicial function and private process, and that striking down the program poses fewer risks than upholding it. Here’s the abstract:

The Delaware Arbitration Program established a procedure by which businesses can agree to have their disputes heard in an arbitration proceeding before a sitting judge of the state’s highly regarded Chancery Court. The Program arguably offers a veritable trifecta of procedural advantages for commercial parties, including expert adjudication, efficient case management and short cycle time and, above all, a proceeding cloaked in secrecy. It also may enhance the reputation of Delaware as the forum of choice for businesses. But the Program’s ambitious intermingling of public and private forums brings into play the longstanding tug-of-war between the traditional view of court litigation as a public venue for private dispute resolution and the and perception of courts as institutions that represent and are accountable to the public. A constitutional challenge based on third parties’ right of access to court proceedings resulted in a district court ruling that arbitration proceedings heard before sitting judges of the Delaware Chancery Court were “essentially” non-jury civil trials and thus were subject to public access. The case raises legitimate questions about the appropriateness of structuring a program in which sitting judges serve as arbitrators and preside over a procedure that is effectively shielded from public view. It also implicates issues regarding the use of public resources in ostensibly private disputes, and even the way our justice system is funded. This article explores the factors that provided the impetus for the Delaware Arbitration Program and analyzes the arguments and policy considerations for and against the district court’s decision.

AALS ADR Section Call for Papers

CALL FOR PAPERS

ADR and the Regulatory State

Sponsored by the AALS Section on Alternative Dispute Resolution

2014 AALS Annual Meeting • January 2-5, 2014 • New York City

Private dispute resolution and agency decision-making are now prominent and permanent features of our legal landscape, either as substitutes for or alternatives to formal adjudication. In this new world of procedural variety, ADR and administrative law and procedure overlap across multiple dimensions. Agencies use ADR in their own regulatory work. Agencies use ADR in resolving inter-agency conflicts. Agencies increasingly regulate private arbitration in ways that arguably conflict with arbitration jurisprudence under the Federal Arbitration Act. And concerns about access to justice and procedural justice cut across the domains of private dispute resolution and administrative law.

The AALS Section on Alternative Dispute Resolution invites submissions on any topic exploring these intersections between ADR and administrative law. The author of the selected paper will be invited to participate in the Section’s program at the 2014 AALS Annual Meeting. Jeffrey Lubbers (American), Jim Rossi (Vanderbilt), Nancy Welsh (Penn State), and Maureen Weston (Pepperdine) are scheduled to participate on the panel.

Details:

  • Only full-time faculty from AALS member institutions are eligible to submit papers.
  • Both essay and article length papers are welcome, and we are happy to review non-traditional formats (e.g., photo essays).
  • Papers already accepted for publication in a journal are eligible for submission as long as the paper will not be published prior to the Annual Meeting.
  • The selected author will participate in the Section on Alternative Dispute Resolution program, which will take place at 4:00-5:45 on Saturday, January 4, 2014, in New York City.
  • Authors will have to rely on their own institutions for funding to attend the conference.

The deadline to submit a draft paper is Friday, September 5, 2013.  Late submissions will not be accepted.  Please submit the draft paper to Professor Paul Kirgis, Chair-Elect of the Section on Alternative Dispute Resolution, as an attachment (Word or PDF) to an e-mail sent to kirgisp@stjohns.edu.  An e-mail acknowledging the submission will be sent promptly to each author.  Members of the ADR Section’s Executive Committee will review submissions and communicate decisions by late September 2013.

Any questions?  Please do not hesitate to contact Paul Kirgis at kirgisp@stjohns.edu or (718) 990-6610.

Cardozo Panel to Discuss Delaware Chancery Arbitration Scheme

I will be moderating a panel discussion at Cardozo School of Law this Thursday evening on the Delaware Chancery Court’s arbitration program, which I blogged about here and here. The Delaware scheme was struck down by a federal district court last year. The case is now on appeal to the Third Circuit.

Here are the panel discussion details:

The Cardozo Journal of Conflict Resolution Presents:

Secret Courts? The Delaware Court of Chancery Arbitration Experiment

Can sitting judges confidentially arbitrate disputes? In 2009, the Delaware legislature amended its laws to permit judges of the Court of Chancery to do just that. For a specified set of fees, parties could consent to binding arbitration by some of the country’s most renowned experts in corporate law. But unlike traditional litigation before Chancery judges, the entire proceeding would remain confidential. While some praised this program as an innovative use of court-sponsored dispute resolution in the nation’s corporate capital, others argued that it blurred the line between litigation and arbitration.

In August 2012, following a challenge from the Delaware Open Government Coalition, the program was declared unconstitutional under the First Amendment’s right of qualified public access to court proceedings. The case is now on appeal to the Third Circuit.

Our panel of experts will discuss the program and appeal–and what this path breaking case could mean for court-annexed dispute resolution more broadly.

Thursday, February 7
6:30 – 8:30 p.m.
Jacob Burns Moot Court Room
Reception to follow in lobby

Moderator:

Paul F. Kirgis, St. John’s University School of Law

Speakers:

Thomas E. Carbonneau, Penn State University Dickinson School of Law; Director of the Institute of Arbitration Law and Practice

Katrina Dewey, CEO and Founder of LawDragon.com

David L. Finger, Partner, Finger & Slanina; Lead counsel for the Delaware Open Government Coalition

Tracey B. Frisch, Staff Attorney at the American Arbitration Association; Adjunct Professor at Cardozo School of Law

Hon. Shirley Werner Kornreich, Justice of the New York State Supreme Court (Commercial Division)

CLE credit: This program offers 2 CLE credits, transitional and non-transitional

To register: http://goo.gl/jpo9R

Questions? Contact Brian Farkas at brian.farkas@law.cardozo.yu.edu

From Neutral in Chief to Bargainer in Chief

Shortly after the 2011 debt crisis, I wrote a post titled “Neutral in Chief?” in which I suggested that, while President Obama was perceived to have “lost the debt crisis negotiation,” he may not have seen himself in the role of negotiator at all. He may in fact have seen his role closer to that of mediator than of interested party. I argued that as President and leader of his party, he had an obligation to take a more assertive negotiating posture and to explain his goals to the American people.

I don’t know whether I was right about how Obama saw himself at that time. (It now looks like the Budget Control Act of 2011 may have been a brilliant piece of tactical negotiation. It certainly seems to have given Obama leverage by creating an unattractive BATNA for his counterparty.) However Obama saw himself then, though, he is now most certainly the Bargainer in Chief. And as Brian Pappas urged back then, he has done a much better job recently of telling a compelling narrative in support of his position.

Now that Obama has unequivocally taken on the role of lead negotiator, we will see his negotiating style in stark relief. He has already led off with a large concession–a concession that was rejected without a counteroffer by House Republicans. What now? Assuming he believes his BATNA is stronger than theirs, tit-for-tat would suggest that he make no further concessions and perhaps even retract his offer. He cooperated, his counterparty defected. Both game theory and more traditional negotiation dogma indicate that he should not “bid against himself” by making a second concession without significant movement on the other side.

Are there other options? In a recent piece in the LA Daily Journal (subscription required), Tom Stipanowich exhorts both sides to follow the example of Lincoln and turn to principled negotiation, including focusing on problem-solving (rather than partisan invective), looking for trade-offs and creative solutions (turn to a truly neutral third-party?), and finding a common enemy (a second recession) to cooperate against.

A majority of House Republicans seem to have rejected that approach, at least for now. Perhaps a Republican minority will join with House Democrats to negotiate a compromise position that would satisfy most of the President’s interests. A little joint problem-solving would be a welcome change. Until that happens, however, Obama should not make further concessions unless he is convinced that he cannot live with his BATNA.

Regardless of how this plays out, it is now clear who the real party in interest is on the Democratic side. Barack Obama. As much as his health care plan, the outcome of this negotiation will determine his legacy.

Nitro-Lift Technologies v. Howard: Judicial Review and the Contractarian Model of Arbitration

In my previous post on Nitro-Lift, I argued that arbitration agreements involving covenants not to compete could be susceptible to challenge under the Federal Arbitration Act’s savings clause. Because it equates arbitrators with courts sitting in other jurisdictions, that analysis rests on an assumption that arbitrators act as quasi-public dispute resolvers, determining rights and obligations while assuming responsibility for the application of both state and federal statutory and common law.

But there is another way to understand arbitration, as a species of private contract. And this “contractarian” understanding may provide states with a more effective way of slowing the arbitration express. But it delays the exercise of state sovereignty until the judicial review stage of an arbitral proceeding.

My complete explanation of this theory is contained in my article Judicial Review and the Limits of Arbitral Authority: Lessons from the Law of Contracts. Rather than explicate the entire theory again, I will apply its principles to the context of Nitro-Lift and trust the reader to seek out the full article if elements seem unclear.

The contractarian model of arbitration rests on the assumption that arbitrators are not public actors, such that, as courts have consistently held, arbitration is not state action. (This assumption is an important structural element in the Supreme Court’s arbitration edifice, because if arbitration were state action, due process would apply, and the Court assuredly does not want due process to apply.) Under the contractarian model, arbitrators are private “contract readers,” whose job is to fill in the gaps in the parties’ agreement when the parties have a dispute about what they agreed to. The arbitral award, in this model, is not equivalent to a court judgment, but to a contract term. It is the term that the parties would have agreed to ex ante if they had anticipated the circumstances that subsequently arose.

Seen through the lens of contract, the rules on judicial review of arbitral awards require much greater court oversight than the Supreme Court has been willing to concede. To see why, reconsider Nitro-Lift from a contractarian perspective.

Remember that in Oklahoma, a contract that imposes an unreasonable restraint on an employee’s ability to compete is void. It is not a contract at all. Further, we know from the Oklahoma Supreme Court’s decision that the covenant at issue in Nitro-Lift was unreasonable under Oklahoma law. So the parties did not have the power to enter into that agreement at the time they signed the contract.

Now assume that on remand, the claim in Nitro-Lift is sent to arbitration. An arbitrator issues an award that has the effect of preventing the employee from competing. In so doing, the arbitrator has effectively supplied a contract term that could not legally have been included in the contract.

Can an Oklahoma court do anything about that? A logical reading of the FAA suggests it can. FAA section ten provides that an arbitral award may be vacated “where the arbitrators exceeded their powers,” among other reasons. 9 U.S.C. § 10(4). If the parties would have been acting in excess of their own contracting powers by including a particular employment restriction in their contract, then the arbitrator must also have exceeded his powers by supplying an award term that imposes the same restriction.

Nitro-Lift is an especially easy case, because the Oklahoma Supreme Court had already declared the covenant unreasonably restrictive. But the same analysis should apply whenever an arbitrator issues an award that, had it been a judgment of a court, would have been overturned on appeal. Such an award amounts to an “arbitral waiver” of the substantive rights at issue—it is equivalent to an exculpatory contract waiving those rights.

Not all exculpatory contracts are void. But there are many contexts in which exculpatory contracts are unenforceable, including those that waive liability for intentional torts, those that involve the provision of important public services, and those between parties of radically unequal bargaining power.

Consistent application of the contractarian model, in tandem with FAA § 10, could thus provide state courts with a legal basis for scrutinizing arbitral awards in a much greater range of cases than has heretofore been recognized.

Blankley on the Newest Class Arbitration Case to Reach the Supreme Court

Friend of the blog Kristen Blankley (Nebraska) weighs in on the Supreme Court’s next duel with the Second Circuit over class arbitration:

The Supreme Court today granted cert in the Second Circuit case of Oxford Health Plans, LLC v. Sutter, No. 12-135.  The Sutter case is a direct response to the Supreme Court’s 2010 decision in Stolt-Nielsen regarding class actions.  Broadly speaking, the Stolt-Nielsen Court held that an arbitration agreement that is “silent” on the issue of class action arbitrations cannot be read to allow such a procedure.  In Stolt-Nielsen, the Court found that the arbitrator had “exceeded powers” by reading into a silent arbitration agreement the ability to proceed as a class action.

The Sutter case is a strikingly similar case to Stolt-Nielsen in that the arbitrator in the Sutter case likewise interpreted a “silent” arbitration clause to allow a class action procedure.  The district court and ultimately the Second Circuit confirmed the arbitrator’s ruling.  The reviewing courts wrangled with the Stolt-Nielsen decision, and ultimately distinguished it on its facts.  The Second Circuit relied on the arbitrator’s finding that the arbitration clause at issue in Sutter was broader than the arbitration clause in Stolt-Nielsen, and perhaps the broadest arbitration clause that the arbitrator had ever seen.  The Second Circuit reasoned that Stolt-Nielsen did not provide a “bright line” rule, but simply required a contractual basis for the finding that a class action procedure was warranted under the contractual language.  675 F.3d 215, 222 (3d Cir. 2012).

This is a case that I’ve been watching, and I’m somewhat glad to see that the Supreme Court has taken up the case.  The Court will be forced to decide more squarely whether a “silent” arbitration agreement under any circumstances can constitute a contractual basis for a class action arbitration.  Given the trend in the Supreme Court’s arbitration precedent, I predict that the Supreme Court will extend its holding in Stolt-Nielsen to cover all “silent” arbitration clauses.  Such a ruling, however, appears to divest contractual powers away from the contracting parties as the Court continues to prefer bilateral arbitration over the potential for class-wide procedures.  The Supreme Court no longer appears to be enforcing agreements to arbitrate as they are written but instead has been interpreting them in a way that favors one, specific type of arbitration.  I was excited to see courts like the Second Circuit find ways to allow class procedures in contracts in which the parties arguably agreed to such a mechanism.  Perhaps that excitement will be short-lived.

Nitro-Lift Technologies v. Howard: Forum Selection and the FAA Savings Clause

As I argued in a recent post, Nitro-Lift Technologies v. Howard, 568 U.S. ___ (2012), is another in an increasingly long line of cases that trample on state sovereignty in the name of the Supreme Court’s fabricated “federal policy favoring arbitration.” The question for state courts chafing under this regime is whether legal strategies exist to constrain that “federal policy” in the service of federalism.

The answer is, probably not. At least, not for the run of cases. But there may be strategies that could define some limits on the policy as a way to slow the arbitration locomotive down. In this post, I’ll talk about a possible brake from the Federal Arbitration Act’s section two, and in a follow-up post I’ll talk about judicial review under section ten.

Section two contains the FAA’s “savings clause,” which provides that arbitration agreements are “enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. This clause, on its face, seems to allow state courts to rely on generally-applicable contract defenses to decline enforcement of arbitration agreements. The problem is that the Supreme Court has all but eviscerated the savings clause by holding that even generally-applicable state contractual defenses are preempted whenever they “are applied in a fashion that disfavors arbitration” or “disproportionately impacts arbitration agreements.” See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747 (2011). The fact that a contract defense—unconscionability in Concepcion—applies to lots of contracts besides arbitration agreements does not inoculate it from the lethal federal policy favoring arbitration.

But the context of Nitro-Lift may expose one of the few areas in which the savings clause could provide room for a state court to decline enforcement of an arbitration agreement. At a minimum, a state court could force the Supreme Court to confront more directly than it has the extremism of its arbitration-uber-alles jurisprudence.

Assume that the Wisconsin Supreme Court is the next state high court to hear a case in which an employer seeks to enforce an arbitration clause in a covenant not to compete. Like Oklahoma, Wisconsin has a statute proscribing covenants not to compete. Wis. Stat. §103.465. But Wisconsin has gone further than Oklahoma in preserving the jurisdiction of its courts to enforce its statute. In Beilfuss v. Huffy Corp., 685 N.W.2d 373, 378 (Wis. Ct. App. 2004), the Wisconsin Court of Appeals refused to enforce a clause selecting Ohio as the exclusive forum for the resolution of a dispute involving a covenant not to compete. Citing the “reasonableness” exception in the test from M/S Bremen v. Zapata, 407 U.S. 1 (1972), the court held that “it is unreasonable to enforce the forum selection clause because it violates Wisconsin’s strong public policy governing covenants not to compete.”

When the Wisconsin Supreme Court gets its case seeking to compel arbitration of a covenant not to compete, it begins by citing Beilfuss (which, incidentally, the high court has cited with approval before for its rejection of the accompanying choice of law clause). It finds that, under Wisconsin law, parties to a covenant not to compete made in Wisconsin with a Wisconsin employee may not specify any forum or decision-maker for enforcement of that covenant other than the Wisconsin courts. Based on that holding, it refuses to enforce the arbitration agreement. Wisconsin law thus puts arbitration agreements on exactly the same footing with other forum-selection agreements. While the rule certainly favors litigation in Wisconsin courts over arbitration, it neither disfavors arbitration nor disproportionately impacts arbitration agreements in comparison with other private contracts specifying a dispute resolution forum.

How would the U.S. Supreme Court react to such a decision? If past is prologue, it would look for a way to reverse. It would have at least one precedent to lean on. In Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898 (5th Cir. 2005), the Fifth Circuit enforced an international arbitration clause in a maritime employment agreement despite a Louisiana statute barring all forum selection clauses in employment contracts. As courts have grown accustomed to doing, the Fifth Circuit simply declared that the federal policy favoring arbitration trumped Louisiana law and brushed aside the statute.

The Supreme Court could do that, as well.  But the case that I have posited is not as easy as Lim, because the state policy is more narrowly tailored and the arbitration agreement is not backed up by the New York Convention, with all the international comity concerns that raises. This is a case in which enforcing the arbitration agreement means requiring state courts to accede to arbitration even in cases in which they would not bow to a sister state. The Supreme Court could follow Lim, then, but doing so would require it to proclaim greater deference toward private arbitrators than toward the courts of the several states.

In the age of Citizens United, with the public good repeatedly subjugated to the will of private economic power, would that shock us?

Nitro-Lift Technologies v. Howard: The Arbitration Locomotive Rolls On

As Jill Gross suggested in her post the other day, there is nothing novel about the Supreme Court’s per curiam decision in Nitro-Lift Technologies v. Howard, 568 U.S. ___ (2012). And the fact that the case seems unexceptional is powerful evidence for how extreme the Supreme Court’s arbitration jurisprudence has become.

Like most states, Oklahoma has long disfavored covenants not to compete. Oklahoma goes further than many in that it has enacted a statute, passed in 2001, rendering void and unenforceable any contract that prevents an employee from engaging “in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer.” Okla. Stat. Tit. 15 § 219A. Without question, Oklahoma considers the regulation of contracts in restraint of trade to be an important public policy matter.

In Nitro-Lift, the Oklahoma Supreme Court refused to enforce an arbitration agreement in a dispute involving a covenant not to compete. Unfortunately, the court’s sloppy reasoning left it open to a summary reversal by the Supremes. The Oklahoma court, citing only its own precedents, held that “the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.” That holding is obviously in conflict with Federal Arbitration Act precedent, so its reversal is unsurprising.

But the result of the decision is remarkable. Private employers in Oklahoma are flatly prohibited from including broad covenants not to compete in their contracts with employees. Enforcing that proscription—and thus protecting both the free market and the rights of employees—would appear to be a basic obligation of the Oklahoma courts. Yet the courts of Oklahoma have just been told that private employers can, simply by dropping a paragraph of text into an employment contract, divest them of jurisdiction to enforce Oklahoma’s law against covenants not to compete.

Decisions like Nitro-Lift are extraordinary in their disregard for principles of federalism. The Supreme Court’s arbitration jurisprudence uses a short procedural statute enacted almost 90 years ago to deprive states of their historical prerogative to regulate and enforce private contracts. As Richard Reuben has persuasively argued, this is not a conservative position. It’s an example of judicial activism in the service a radical Chamber of Commerce agenda.

In subsequent posts I will suggest ways that states might be able to respond to Nitro-Lift and similar cases in defense of their sovereignty.

Culture and Conflict – Reflections on the WIP Conference

Another engrossing Works-in-Progress Conference wrapped up on Saturday with two presentations focusing on the challenges presented by conflicting cultural paradigms in our increasingly interconnected world. Mariana Hernandez-Crespo (St. Thomas, Minn.) made a passionate plea for the integration rather than assimilation of different cultures, the better to foster the multiplicity of ideas that spurs innovation. Recognizing the impossibility of truly seeing the world through another’s eyes, she argued that conflicts at the state level—such as those springing from bi-lateral investment treaties—should be resolved through a robust system of cross-cultural co-mediation.

Moving from the level of the state to the level of the family, Sukh Singh (Willamette) movingly described the continuing but evolving vitality of arranged marriage on the model practiced among modern Indians. In doing so, he evoked the different values that underlie social institutions in the West and in the emerging countries of the newly-developed world, with the primary American value of personal autonomy contrasted against the relational values of community and respect for hierarchy in other cultures. He suggested that customs such as arranged marriage can adapt to promote both sets of values.

This tension between the value of autonomy on the one hand and the values of community and respect for hierarchy on the other has been a theme of my research into dispute resolution in Ghana. Ghana has a deeply entrenched system of traditional dispute resolution, with a hierarchy of regional and local chiefs acting as customary arbitrators. That system is being forced to evolve, however, as Ghana cements its position as West Africa’s most stable democracy. From the abstract to my contribution:

[A]s Ghana reaches for the material gains of participation in modern commercial life, the wide sway of its customary adjudication is coming under increasing pressure. New legal developments have truncated the authority of traditional decision-makers. An overburdened court system, however, lacks the resources to fill the resulting adjudicative gaps. To solve the problem, Ghana is now experimenting with a system of quasi-public dispute resolution, including contractual arbitration and court-connected mediation.

Key to Ghana’s success will be its ability to integrate those two systems in a way that respects both the traditional values held dear by many Ghanaians and the concern for rule of law and private property that characterizes the move toward a liberal market democracy. The results of its dispute resolution experiment should provide important lessons, both for other emerging democracies and for the West, in how to successfully arrange marriages of process as well as marriages of individuals.

A Stumble in the March of Adjudicative Privatization: Delaware Chancery Arbitration Scheme Declared Unconstitutional

Last winter, I wrote about the Delaware Court of Chancery’s arbitration scheme, in which the court hired out its Chancery Judges to serve as “private” arbitrators, deciding in secret cases they otherwise would have been deciding in public, with proceeds from the five-figure fees going into court coffers.

The scheme was a grotesque, if predictable, development in the seemingly inexorable march of adjudicative privatization. Heretofore, privatization of the judicial function had been achieved through outsourcing. Chief Justice Rehnquist had been keen to reduce the caseloads of federal judges; one of his legacies was the legitimization of private arbitrators as judicial substitutes for any dispute in which the parties were in privity, regardless of bargaining power or rights implicated. That allowed for whole new classes of disputes to be shifted from the public court system to a coterie of unregulated lawyers and retired judges sitting as arbitrators. The twist on conventional outsourcing was that these “private judges” were allowed to keep all the fees they could collect, since the cases had been removed from the court system entirely.

It was logical that judges would want a piece of this action (without waiting until the vesting of pensions, that is). That’s what the Delaware chancery arbitration scheme promised. It allowed parties in large corporate disputes to choose the secrecy of arbitration–cases were not even docketed under the plan–while still getting the decisionmaking of a Chancery Judge, in exchange for a significant contribution to the Chancery Court’s kitty.  (It’s worth noting that the Court may have overestimated the attractiveness of its plan–reports suggest that only five cases have actually been arbitrated. The number of cases filed has not been disclosed, however, and that is probably a better measure of the scheme’s success, since the Court nets $12,000 for each case filed.)

This week, U.S. District Judge Mary McLaughlin granted judgment on the pleadings to plaintiff Delaware Coalition for Open Government, who had sued the Chancery Court alleging that the arbitration scheme’s secrecy provisions violated the First Amendment’s right of access. Judge McLaughlin concluded that what the Chancery Court was doing pursuant to this scheme was judging, by whatever name, and that it had to be open to the public.

“The court concludes that the Delaware proceeding functions essentially as a non-jury trial before a Chancery Court judge,” she wrote. “Because it is a civil trial, there is a qualified right of access and this proceeding must be open to the public.” (Presumably, this holding permits the Chancery Judges to continue hearing cases in the arbitral format and for the same fees, but with the caveat that all proceedings must be public. If the scheme was undersubscribed before, one suspects, it will be even less attractive now.)

It’s a refreshingly simple conclusion, dispatching the Chancery Court’s chicanery at a stroke. It will, without question, be appealed to the Third Circuit.