Please find enclosed a double issue of the latest summaries from Recent Developments in Dispute Resolution.

Transcription

1 Dear subscriber: Please find enclosed a double issue of the latest summaries from Recent Developments in Dispute Resolution. HEADLINES: ARBITRATION ** Successful defense against adverse party's attempt to overturn arbitral award entitles prevailing party to attorney fees. (1st Cir. (Mass.)) ** Arbitrator wrongly assumed that he was without jurisdiction to rule on counterclaim. (Ga. App.) ** The defense of lack of mental capacity to contract, when an agreement is signed with an arbitration clause, is a matter for a court, not an arbitrator. (Tex. Sup. Ct.) ** A threat of harm or ineffective waiver will justify judicial infringement on the fundamental right of parents to decide how to resolve disputes over child custody and upbringing. (N.J. Sup. Ct.) ** Arbitration clause may be against public policy and therefore unenforceable if US forum and US law not used. (11th Cir. (Fla.)) SETTLEMENT ** Agents may bind sovereigns only if they comply with law controlling the agency under the public-contracts doctrine. MEDIATION ** Mediated settlement overturned upon objection by parties whose interests were not sufficiently represented during one-day mediation.

2 CASES ** Arbitration: Successful defense against adverse party's attempt to overturn arbitral award entitles prevailing party to attorney fees. (1 st Cir. (Mass.)) //Janney Montgomery Scott LLC v. Tobin//, 2009 WL (1st Cir. July 8, 2009). Emily and Jon Tobin owned trust accounts overseen by Janney Montgomery Scott, LLC. The value of the accounts dropped from $1 million to $500,000 over a few years. The Tobins, believing that Scott's investment choices equated to malfeasance, filed for arbitration with the National Association of Securities Dealers, claiming violation of a Massachusetts consumer protection statute. An arbitration panel found for Tobin and awarded damages and attorney's fees. Scott moved to vacate the order in federal court; the Tobins filed a motion to vacate Scott's motion. Tobins' motion also sought confirmation of the arbitration award and attorney fees for appearing in federal court. The court affirmed the arbitration award, but denied Tobins' attorney's fees. The Tobins appealed to the United States Court of Appeals for the First Circuit. The Court reversed. The Court analyzed the Massachusetts statute relied upon by the Tobins and concluded attorney fees should have been considered. The Court ruled that because the statute authorized attorney fees following successful arbitration, it implicitly authorized that party to then collect attorney fees for any successful battle affirming the arbitral award in court. (TD) Case can be found on Westlaw, or by searching for any party's name at ** Arbitration: Arbitrator wrongly assumed that he was without jurisdiction to rule on counterclaim. (Ga. App.) //Hansen & Hansen Enterprises, Inc. v. SCSJ Enterprises, Inc.//, 2009 WL , (Ga. App., July 10, 2009).

3 Hansen & Hansen Enterprises, Inc. sold two stores to SCSJ Enterprises, Inc. When the stores did not produce the profit expected, SCSJ claimed that Hansen misrepresented the stores' profits and other financial data, and that Hansen created fraudulent tax records. The dispute was submitted to arbitration pursuant to the sales contract between the parties. SCSJ alleged fraud and deceit, among other contract claims, and Hansen counterclaimed, alleging that SCSJ had failed to pay certain promissory notes. The arbitrator issued an award in favor of Hansen on all of SCSJ's claims and dismissed Hansen's counterclaim, stating he was without jurisdiction to rule on the claim. The arbitrator also assessed attorney fees and costs against SCSJ. SCSJ moved to vacate the award in state court. The court ruled that the arbitrator had manifestly disregarded the law, overstepped his authority and imperfectly executed his authority such that a final and definite award was not made. Hansen appealed to the Georgia Court of Appeals. The Court reversed and remanded. It held that the arbitrator did not manifestly disregard the law and that the arbitrator's award of attorney fees was not an overstepping of his authority. The Court then held that the arbitrator should have considered Hansen's counterclaim instead of claiming he did not have jurisdiction, and it remanded the case so that the arbitrator could consider Hansen's counterclaim. (EAP) Case available at Westlaw. ** Arbitration: The defense of lack of mental capacity to contract, when an agreement is signed with an arbitration clause, is a matter for a court, not an arbitrator. (Tex. Sup. Ct.) //In re Morgan Stanley & Co., Inc.//, 2009 WL (Tex. Sup. Ct. July 03, 2009)

4 Helen Taylor was diagnosed with dementia in The same year, she transferred several securities accounts worth millions of dollars to management by Morgan Stanley. By 2005, her estate had been severely depleted, and her legal guardian brought suit against Morgan Stanley for breach of fiduciary duty and breach of contract. Morgan Stanley moved to compel arbitration, but the guardian argued against it, maintaining that Taylor did not have the mental capacity to enter the agreement in the first place. The probate court denied Morgan Stanley's motion. Morgan Stanley appealed unsuccessfully to the state appellate court, and then finally appealed to the Texas Supreme Court. It affirmed. The Court held that the defense of lack of mental capacity to contract, when an agreement is signed with an arbitration clause, is a matter for the courts and not for the arbitrator. The Court noted that while the U.S. Supreme Court's decision in Prima Paint held that the matter of a contract's validity is to be determined by the arbitrator, challenges that go to the question of the agreement to arbitrate itself are to be reserved for the courts. (AB) Case available on Westlaw or at ** Arbitration: A threat of harm or ineffective waiver will justify judicial infringement on the fundamental right of parents to decide how to resolve disputes over child custody and upbringing. (N.J. Sup. Ct.) //Fawzy v. Fawzy//, 2009 WL (N.J. Sup. Ct., July 01, 2009) Mr. and Mrs. Fawzy entered into a binding agreement to settle their divorce through arbitration. While the arbitration was in progress, Mr. Fawzy filed a motion seeking to restrain a decision on custody, arguing that the issue could not be arbitrated as a matter of law because the court has a parens patriae obligation to assure the best interests of the child. Further, he was rushed and pressured into agreeing to arbitrate.

5 The trial judge denied the motion. The appellate court reversed and Mrs. Fawzy appealed to the New Jersey Supreme Court. The Court affirmed. It held that parents have a constitutionally protected right to choose the forum in which they settle child custody disputes, and it may include arbitration. However, such an agreement must be in writing and clearly establish that the parties are aware of their right to a judicial determination and must knowingly and voluntarily waive them. The Court held that a threat of harm -- not best interests -- is the standard that will justify judicial infringement on the fundamental right of parents to decide the forum for a custody determination. The Court also ruled that a record must be made in child custody arbitration. In the Fawzys' case, this meant the agreement to arbitrate was insufficient to bind the parties because the record was inadequate to assure the parties fully understood the consequences of deciding their dispute in arbitration. (AB) Case available on Westlaw or at ** Arbitration: Arbitration clause may be against public policy and therefore unenforceable if US forum and US law not used. (11th Cir. (Fla.)) //Thomas v. Carnival Cruise Lines Inc.//, 2009 WL (11th Cir. (Fla.), July 1, 2009) Thomas was a crew member on the Carnival Cruise Line vessel Inspiration. While working, he slipped and fell, injuring himself. He sued in Florida state court for negligence under the Jones Act, unseaworthiness of the ship and failure to provide prompt and adequate maintenance and cure under general maritime law of the United States, and failure to pay wages under the Seaman's Wage Act. Carnival removed to federal court, and sought to compel arbitration under the most recent Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

6 The motion to compel was granted. Thomas appealed to the United States Court of Appeals for the Eleventh Circuit. The Court reversed. It ruled that an arbitration clause is against public policy if the choice of forum and choice of law clauses operated in tandem as a prospective waiver of the party's right to pursue statutory remedies. In this case, the Court found it was clear that the arbitration clause required that the case be arbitrated in the Philippines with the choice of law being the country to which the vessel was registered, in this case, Panama. The Court ruled that there was no possibility that either American law or an American forum would be used, thus the arbitration clause was against public policy. (TD). Opinion available at Westlaw, or for free as a.pdf at ** Settlement: Agents may bind sovereigns only if they comply with law controlling the agency under the public-contracts doctrine. //Northrop Grumman Ship Systems, Inc. v. Ministry of Defense of Republic of Venezuela//, 2009 WL , (5th Cir. (Miss.), July 9, 2009). Northrop Grumman, a company that builds ships, contracted with the Ministry of Defense of the Republic of Venezuela. The contract contained an arbitration clause requiring all disputes to be settled by arbitration in Venezuela. The two parties had a disagreement and Grumman sued in federal court in Mississippi. The district court refused to enforce the arbitration forum clause because Venezuela was violently unstable at the time. After extensive litigation, a legal representative for Venezuela settled the case with Grumman. Venezuela then moved to vacate the agreement, arguing that their counsel did not have specific authorization to enter into a settlement, pursuant to Venezuela law.

7 The district court rejected these arguments as untimely and held that Venezuela's counsel had authority to enter the settlement agreement. Venezuela appealed to the United States Court of Appeals for the Fifth Circuit. The Court reversed. It ruled that the lower court abused its discretion in denying Venezuela motion, holding that an analysis of settlement authority was based on reasonableness, not timeliness of any objections. As a secondary issue, the Court affirmed the lower court's holding that Mississippi agency law controlled. As the Court stated, "a principal who authorizes an agent to act on his behalf in a state assumes the risk that he will be held bound under local law." (TJT) Case available on Westlaw or at ** Mediation: Mediated settlement overturned upon objection by parties whose interests were not sufficiently represented during one-day mediation. //Clark v. American Residential Services LLC//, 2009 WL , ((Cal.App. 2nd Dist.), July 06, 2009). Derain Clark and Maxine Gaines filed a class action lawsuit seeking damages for wage- and hour violations against their employer, American Residential Services, LLC, a plumbing company. After a substantial delay, the parties participated in a one-day mediation before a respected mediator, where Clark and Gaines agreed to settle the matter for a lump sum of $2 million. The agreement stated that Clark and Gaines would each receive $25,000, and the other 2,360 class members would receive an average payment of $ Twenty putative class members objected to the settlement because Clark and Gaines offered insufficient evidence describing the damages of the other 2,360 parties to the suit. After a hearing, a state court judge approved the settlement. The objectors appealed to the California Court of Appeals, 2nd District. The Court reversed and remanded. It held trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement offered on the objectors behalf. The Court also ruled that the trial court abused its discretion in finding that $25,000 enhancements for the named plaintiffs were fair and reasonable. (EAP)

8 Case available on Westlaw. Brook Reinhard Editor Contributors: Tom Dimitre Timothy J. Tyson Emilee A Peterson Allison Buehler Center for Dispute Resolution Willamette University, College of Law The Oregon Civic Justice Center 790 State Street SE Salem, Oregon Telephone: Fax: July 23, 2009