All posts by Sarah Cole

No Surprise — Iskanian Court Enforces Class Action Waiver

From the Daily Labor Report (BNA):

“Under directions from the California Supreme Court, the California Court of Appeal Feb. 26 held that class action and arbitration waivers in an agreement between a trash removal company and an employee are enforceable as to the worker’s individual wage and hour claims under state law (Franco v. Arakelian Enters, Inc., Cal. Ct. App., No. B232583, 2/26/15). In June 2014, the California high court ruled in Iskanian v. CLS Transportation Los Angeles LLC, 2014 BL 174476 (Cal. 2014), that recent U.S. Supreme Court precedent abrogated California case law that had provided that arbitration agreements containing class action waivers limiting employees’ ability to pursue statutory protections are unenforceable (120 DLR AA-1, 6/23/14). The court in Iskanian found that the Federal Arbitration Act preempts state law rules against such waivers if they interfere with fundamental attributes of arbitration. Bound by Iskanian, the California Court of Appeal vacated, reversed and remanded its November 2012 ruling in Franco v. Arakelian Enterprises Inc., in which it had affirmed the denial of Arakelian’s motion to compel arbitration of employee Edixon Franco’s class action overtime and meal and rest period claims under the California Labor Code (228 DLR A-2, 11/27/12). The appeals court said the arbitration agreement between Franco and Arakelian is “enforceable unless it is found to be unconscionable on grounds that exist ‘for the revocation of any contract,’ within the meaning of the FAA.” However, also following Iskanian, the court found unenforceable the agreement’s waiver of Franco’s claim under California’s Private Attorneys General Act, which is not subject to arbitration.”

Further Thoughts on Armstrong Arbitration Award

Kristen Blankley, who has written on the issue of perjury in arbitration and teaches dispute resolution and ethics courses at the University of Nebraska College of Law, offers additional thoughts (at my request) on the Armstrong arbitration award issued yesterday. From Kristen:

Earlier this week, SCA Promotions, a Texas company, filed a motion in Texas State Court to confirm an award of $40 million in its favor against Lance Armstrong and a former company associated with him, Tailwind Sports as a sanction for their repeated perjury in arbitration. The procedural history of this case is particularly complicated, and it makes sense to spend a minute to outline it.
Lance Armstrong was named the winner of the Tour de France in 2002, 2003, and 2004. When Armstrong won in 2004, considerable speculation existed regarding whether he had won cleanly. SCA Promotions, the prize insurer, was reluctant to pay the prize money given the speculation, and ultimately SCA, Armstrong, and Tailwind Sports arbitrated the case. After extensive discovery and presentations to the arbitrators, the parties agreed to settle the case with SCA paying Armstrong and Tailwind $7.5 million. The settlement agreement contained its own arbitration agreement, which was broader than the original arbitration agreement among the parties. The arbitration agreement required arbitration of “any dispute or controversy . . . arising under or in connection with” the settlement agreement. The parties also agreed to “submit to the jurisdiction” of the currently named panel. The panel included party-appointed arbitrators for SCA and Armstrong/Tailwind, as well as a neutral arbitrator. In the first 2 years after the settlement was reached, Lance Armstrong invoked the jurisdiction of the panel, seeking sanctions against SCA for what was likely a failure to timely pay the settlement agreement.
In 2013, Armstrong admitted on national television that he used performance-enhancing drugs during each of his Tour de France wins, and the US Anti-Doping Agecy stripped him of his titles. Thereafter, SCA sought to convene the jurisdiction of the panel to seek sanctions for Armstrong’s perjury and other wrongdoing in the original arbitration and thereafter.
Despite Armstrong’s strong objections on the grounds of functus officio (i.e., the work of the panel is over when the award is issued), a 2-1 majority found that they had jurisdiction over the issue given the broadly worded language in the settlement agreement. They summarily dismissed the functus officio argument and claimed that the parties brought forth a new claim under the settlement agreement. The majority found Armstrong’s conduct during the first hearing reprehensible and fined Armstrong and Tailwind $10 million in sanctions. Armstrong’s party-appointed arbitrator dissented.
This opinion raises a series of interesting questions, including issues of ethics. I have spent much of the last five years considering issues of party and attorney misconduct in arbitration, see Lying, Stealing, and Cheating: The Role of Arbitrators as Ethics Enforcers, 52 U. LOUISVILLE L. REV. 443 (2014); Advancements in Arbitral Immunity and Judicial Review of Arbitral Awards Create Ethical Loopholes in Arbitration, in JUSTICE CONFLICT & WELL-BEING (2014); and Taming the Wild West of Arbitration Ethics, 60 KANSAS L. REV. 925 (2012). One of the issues I spent considerable time on was the consequences for lying under oath or otherwise tampering with the process.
In this case, the real question for the panel was this: How do we correct rampant perjury that occurred 10 years ago? If the parties had not settled the case and the arbitrators issued an award, the answer would likely have been simple: Nothing. Arbitrators generally have no continuing jurisdiction under the grounds of functus officio. In addition, the applicable statutes of limitation for vacating an award (90 days under Texas law) and perjury (three years under Texas law) had all passed. This case was different in that the parties had settled the first case, included an arbitration agreement in the settlement, and then had the arbitrators issue the settlement as an award.
Assuming that the arbitrators had jurisdiction to hear the dispute under the settlement agreement after learning of Lance Armstrong’s perjury, what could the arbitrators or SCA do? I strongly believe that unethical conduct in arbitration should be subject to some sort of sanction, and I also believe that arbitrators have the inherent authority to sanction such conduct. If the arbitration occurred under JAMS rules, the arbitrators would explicitly have the power to make certain monetary sanctions, such as award of forum fees, attorney fees, and other reasonable fees.
Was the sanction in this case warranted? Ten million dollars for perjured testimony appears quite high, and it appears to be an outlier of a case. The arbitrators noted that this was, however, an exceptional case that warranted an exceptional sanction. The arbitrators based the sanction on the implied duties of good faith and fair dealing inherent in their agreement to arbitrate. I’ve often wondered whether the inherent duties of contracts would be sufficient to warrant sanctions or other types of damages for parties’ bad behavior. This opinion might be just what I need to jump start that project!
At its heart, this sanction award appears to be the arbitrator’s way of undoing the previous settlement agreement and awarding SCA attorney’s fees associated with the first arbitration. As the dissenting arbitrator noted, the $10 million looks and feels a lot like the panel wanted to undo the $7.5 million settlement, recoup $2 million in attorneys’ fees, and add in a little extra for the bad conduct. It makes me wonder whether SCA could have simply sought to rescind the settlement agreement and seek attorneys’ fees before the arbitration panel, rather than asking for sanctions. Rescission with sanctions of attorneys’ fees would likely be more palatable to the parties, the courts, and the public.
There is no doubt that Lance Armstrong will move to vacate this award. My guess is that he will say that the arbitrators exceeded their powers in making the sanctions award. Although Armstrong has a colorable argument, the likelihood of overturning an arbitration award is always slim, and the award will likely be upheld in the Texas courts.

Arbitration Panel Sanctions Lance Armstrong for Lying Under Oath in Previous Arbitration

Today, a tri-partite arbitration panel sanctioned Lance Armstrong $10 million, ordering him to pay that amount to a prize insurer (who insures price incentives for athletes), as punishment for lying under oath about doping during a previous arbitration among the same parties. SCA Promotions, Inc., the insurer, seeks confirmation of the award in a Texas state court.
According to the Wall Street Journal, “The prize insurer SCA Promotions Inc. asked a Texas state judge to confirm the arbitration award against Armstrong, in a filing Monday. It wants the court to enter a $10 million judgment against Armstrong and former team owner Tailwind Sports, a move which it believes will enable it to collect payment.”
As we all know, overturning an arbitration award is extremely difficult to do. The question here is whether this arbitration award represents the resolution of a new dispute or is the re-opening of a dispute that had previously been settled. Several years ago, after Armstrong testified in a previous arbitration that he was not involved in doping, the parties settled their dispute, which resulted in SCA paying 7.5 million dollars to Armstrong. This settlement agreement represented Armstrong’s bonuses, interests and attorney fees. In addition, the agreement stated that, “[n]o party may challenge, appeal or attempt to set aside” the settlement. It also said the agreement was “fully and forever binding.” The settlement agreement also conferred jurisdiction on the arbitration panel to resolve any disputes that might arise out of the settlement agreement.
After it learned that Armstrong was involved in doping, SCA sued, demanding over $12 million. Armstrong rejected this demand and claimed that Texas law did not permit the company to reopen the original settlement agreement. Characterizing the issue as sanctions for fraud, the arbitration panel agreed to conduct a second arbitration. The majority of arbitrators issued an award that requires Armstrong and Tailwind Sports to pay SCA $10 million as punishment for lying under oath and frustrating the arbitral proceedings.
It seems unlikely that the arbitration award will be overturned. Failing to correctly interpret Texas law is not a basis for overturning the award. The question whether the arbitrators exceeded their authority when they issued a sanction to Armstrong for lying under oath in the previous arbitration hearing also seems a long shot (although not impossible since this case appears to be unique). To protect the integrity of the arbitration process, arbitrators should be able to sanction a party who deliberately lied under oath about a material issue in dispute. The previous settlement agreement was based on fraud and thus should not be binding on the parties. As a side note, for those who do not typically read arbitration awards, it is not at all surprising to see the third arbitrator dissent from the panel’s decision. That arbitrator was party-appointed – appointed to the panel by Lance Armstrong and his company, Tailwind. To see the arbitrators’ opinions, go to http://online.wsj.com/public/resources/documents/armstrong02162015.pdf

Consideration of New UNCITRAL Convention Moves Forward

From my colleague, Professor Ellen Deason:

Last week, UNCITRAL (United Nations Commission on International Trade Law) Working Group II (Arbitration and Conciliation) met in New York at the United Nations. I was privileged to attend as an observer sponsored by the Private International Law Interest Group of the American Society of International Law. Thank you PILIG!

One of the main items on the agenda was the enforcement of settlement agreements resulting from conciliation proceedings (with conciliation defined as equivalent to mediation). In order to encourage the use of mediation in cross-border cases, the United States delegation to the Working Group proposed that UNCITRAL develop a convention on the enforcement of settlement agreements resulting from international commercial conciliation. They suggested modelling this convention on the highly successful 1958 UN Convention on Recognition and Enforcement of Arbitral Awards (the New York Convention).

The Working Group debated the proposal and the feasibility of moving forward for two days. It decided to suggest to the Commission that the Working Group continue to consider a convention. In the words of a draft report on its deliberations, the Working Group will seek a broad mandate “to work on the topic of enforcement of settlement agreements, to identify the relevant issues and develop possible solutions, including the preparation of a convention, model provisions or guidance texts.” The Commission will consider the Working Group’s recommendation at its next meeting, in July 2015, and then the Working Group is scheduled to meet in September in Vienna.

Reaching agreement on the issue of enforcement of mediated settlement agreements has proved difficult in the past. Neither the 2002 UNCITRAL Model Law on Conciliation nor the Uniform Law Commission’s Uniform Mediation Act (now adopted in 12 U.S. jurisdictions) contains an enforcement provision. The language of the Working Group’s recommendation reflects this difficulty – although many delegations were supportive of developing a convention and thought it would be feasible to do so, some delegations called for a greater definition of the problem, and others urged consideration of vehicles other than a convention.

The Working Group operates by consensus. It was fascinating from a dispute resolution perspective to see how the Chair was able to define issues and articulate a consensus to proceed with deliberations from the diverse viewpoints expressed by the distinguished delegations.

The issues voiced by delegations with regard to developing a convention reflected a wide variety of perspectives associated with different legal cultures. They included whether a convention would limit the flexibility that is the hallmark of mediation; conceptual and practical difficulties in distinguishing enforcement of settlement agreements resulting from mediation from those reached without third-party assistance, and more generally from ordinary contracts; how an international instrument would interact with domestic legislation on conciliation; enforceability of non-monetary provisions in agreements in light of certain domestic restrictions on such enforcement; and the potential need for a control mechanism such as an authentication of a settlement agreement as a prerequisite to an international enforcement procedure.

There was general agreement that any convention should be simple, but questions as to whether the New York Convention is the best model for a conciliation convention. Certainly the grounds to avoid enforcement of arbitral awards would need to be adapted to the different situation of conciliation. There was also a suggestion that in order to respect party autonomy consent should be required to make any settlement agreement directly enforceable, and a related discussion of structuring an opt-in or opt-out system.

The Working Group devoted the second half of the week to revising the UNCITRAL Notes on Organizing Arbitral Proceedings. This is an update to reflect the 2010 revision of the UNCITRAL Arbitration Rules and developments in the practice of arbitration since the original notes were adopted in 1996. The notes are not intended to prescribe best practices, but rather to provide information for both arbitrators and parties in a way that reflects the global diversity in arbitration proceedings.

Langdon Fellow Position at Ohio State University, Moritz College of Law

If you are interested in an career in dispute resolution and have an interest in academia, I encourage you to apply to become Ohio State University, Moritz College of Law’s next Langdon Fellow. You can apply at jobsatosu.edu. The deadline for applications is March 1, 2015. The position description follows. Please let me know if you have any questions.

The Langdon Fellow works closely with the college professors who teach in the alternative dispute resolution field; acts as the clinical supervisor for two mediation classes per academic year (one in the fall, one in the spring), and also has opportunities to teach in the classroom. As clinical supervisor, the Fellow supervises students mediating at Franklin County Municipal Court or at the City of Columbus Night Prosecutor Mediation Program on afternoons and/or evenings, as well as identifying and overseeing other mediation observation opportunities for students. The Fellow also plans a weekend training session for students each semester. In the classroom, the Fellow attends class sessions for the medication practicum, facilitates discussions of issues presented in mediated cases, and lectures on subjects agreed on by the professor and Fellow. The Fellow also assists the Faculty Director of the Program on Dispute Resolution with programmatic planning and advising dispute resolution certificate students, as well as coaching the law school negotiation competition teams. The Fellow will have time during the fellowship, particularly in the summer months, to focus on his or her own research preferably in the area of dispute resolution. During the second year of the fellowship, the Langdon Fellow may opt to teach up to three (3) credits in the dispute resolution curriculum, to be agreed upon between the Fellow and the Faculty Director of the Program on Dispute Resolution. Requirements: J.D.; significant experience in mediation preferably as both a mediator and a trainer; 2-5 years out of law school and be interested in a career in academia.

Call for Proposals to Host Ninth Annual AALS Works in Progress Conference

For the last several years, one of the best events on the ADR calendar has been the annual Works in Progress Conference coordinated by the AALS Section on Dispute Resolution. Last year’s conference, held in November, was hosted by Southwestern Law School. We are now starting the process of identifying the host for the 2015 conference. If your school might be interested in hosting, please see the Call for Proposals I have included below. Proposals are due March 1, 2015, and can be sent to me at cole.228@osu.edu.

Call for Proposals:

The AALS Alternative Dispute Resolution Section is seeking a host for the 9th Annual Works-in-Progress Conference to take place in the fall of 2015. 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, Cardozo and Southwestern.

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 Sarah Cole, 2015 Chair of the ADR Section, at cole.228@osu.edu by March 1, 2015. In the transmittal e-mail subject matter line, please put “AALS ADR Section WIP Conference Proposal.” If you have any questions, please contact Sarah Cole at the e-mail address listed above. We look forward to hearing from you!

Arbitration Agreement Does Not Preclude Lawsuit By Chiropractor Against His Employer

From Reuters: “An Ohio chiropractor can bring a lawsuit against Aetna Inc in federal court despite having already settled his claims against the company, a U.S. judge has ruled.

U.S. District Judge Michael Shipp in New Jersey said last week that an arbitration agreement between chiropractor Peter Manz and Aetna was not binding because his claims arose from a health insurance plan governed by the federal Employee Retirement Income Security Act.

The ruling applies a similar decision last May from the 3rd U.S. Circuit Court of Appeals, CardioNet Inc et al v. Cigna Health Corp.

Manz is one of the plaintiffs in a class action filed against Aetna in 2009 by a group of healthcare providers saying the company regularly allowed claims and then later rescinded them, violating ERISA.

Some of the providers, including Manz, had agreements with Aetna that required them to arbitrate any disputes. In June 2011, U.S. District Judge Joel Pisano, who was then presiding over the case, ordered Manz to arbitrate with Aetna, and the two eventually settled.

In May 2014, however, the 3rd Circuit ruled in the CardioNet case that arbitration agreements between doctors and insurers could not be enforced when the underlying healthcare plan was governed by ERISA. To enforce them, the court ruled, would violate patients’ rights under the law.

Manz moved to vacate his settlement in light of the decision.

In granting that motion last Wednesday, Shipp said the 3rd Circuit’s decision had made a substantial change in the law requiring it to be thrown out.”

The case is Association of New Jersey Chiropractors et al v. Aetna Inc, U.S. District Court, District of New Jersey, No. 3:09-cv-03761.