A special master was recently appointed by the Northern District of Texas in NetSphere v. Baron (In re Ondova Ltd. Co.), No. 3-09CV988-RF. The underlying Chapter 11 bankruptcy case involves numerous parties, offshore entities and several related lawsuits. After the bankruptcy court held four status conferences related to the parties’ global settlement agreement (GSA), approved by the bankruptcy court on July 28, 2010, the bankruptcy judge made a “Report and Recommendation” to Senior District Court Judge Royal Furgeson which detailed the status of the GSA and recommended the appointment of a special master to mediate claims arising from the conduct of one of the parties. In large part, the bankruptcy court’s concern regarding the GSA arose from what the court termed Baron’s “Cavalcade of Attorneys.” Throughout the bankruptcy proceedings, Baron “has continued to hire and fire lawyers” and has instructed these lawyers to file pleadings against matters resolved by the agreement. The court also expressed concern that such constant turn-over in the “dozens of sets of lawyers” hired by Baron has generated “significant fees . . . to a level that is more than a little disturbing.” The court noted that this behavior “smacks of the possibility of violating Rule 11” or, “more troubling,” the possibility that “Baron may be engaging in the crime of theft of services.” Although the bankruptcy court’s report indicates that there was “substantial consummation” of the settlement agreement by most parties, the court nevertheless “has had lingering concerns at each of the status conferences regarding Jeffrey Baron’s commitment to completing his obligations under . . . and possibly taking actions to frustrate . . . [the settlement agreement].” The court also expressed concern that Baron’s practice of continuously switching legal counsel may pose a risk to the bankruptcy estate and expose other parties to the GSA to unwanted administrative expense. The bankruptcy court informed Baron that he would no longer be allowed to hire additional attorneys. He was given the option to retain his current legal counsel throughout the remainder of the bankruptcy litigation or proceed pro se. Further, the bankruptcy court recommended the Northern District of Texas appoint a special master to conduct a global mediation between Baron and “various attorneys who may make a claim” for reimbursement against the amount of $330,000 set aside by the bankruptcy court as a “security deposit” against the financial risks posed against the bankruptcy estate by the fees incurred by Baron’s attorneys. After consideration of the bankruptcy court’s report, the Northern District of Texas adopted the bankruptcy court’s recommendation in its entirety and appointed a special master to the case. Although the case is still pending, Judge Fergeson’s Order may be viewed here. The bankruptcy court’s Report and Recommendation is available at 2010 Bankr. LEXIS 3575 or 2010 WL 4226285 (N.D. Texas). Tags: special masters, mediation
Continue reading...A forthcoming article entitled “The Litigation-Arbitration Dichotomy Meets the Class Action” by Vanderbilt Law Professor and Director of the Cecil D. Branstetter Litigation & Dispute Resolution Program Richard A. Nagareda makes some interesting and compelling arguments related to AT&T Mobility, LLC v. Concepcion, 09-893, a case set for argument before the U.S. Supreme Court on November 9th. The article examines two cases from the Court’s October 2009 Term, Shady Grove Orthopedic Associates v. Allstate Insurance Co. and Stolt-Nielsen S.A. v. AnimalFeeds International Corp., and argues that “for all their salient differences, the Court’s accounts of class treatment under the Rules Enabling Act and the FAA evidence a deep, underlying convergence between litigation and arbitration doctrine.” Despite that Shady Grove and Stolt-Nielsen illustrate “divergent accounts of class treatment in litigation and arbitration,” their juxtaposition “serves to highlight deep structural similarities between the Court’s treatment of federal and state authority in litigation and the Court’s now-extensive jurisprudence on arbitration.” From this juxtaposition, the author concludes that the “critical precedent that guides the disposition of Concepcion is not Stolt-Nielsen but, rather, Shady Grove.” Here is the abstract: Courts and commentators often conceive of litigation and arbitration as dichotomous regimes for civil dispute resolution. Two new decisions from the Supreme Court provide the occasion to rethink this conventional view. In Shady Grove v. Allstate Insurance, the Court acknowledges that a class action often alters dramatically the incidence of claiming but, for purposes of the Rules Enabling Act, the Court deems this effect to be merely “incidental.” In Stolt-Nielsen v. AnimalFeeds, however, the Court deems the use of class-wide arbitration to be such a “fundamental” change as to lie outside the authority of arbitrators in the face of contractual silence as to class treatment. This Article – for the annual Federal Courts, Practice & Procedure issue of the Notre Dame Law Review – urges a more synthetic understanding of litigation and arbitration. For all their differences, the Court’s accounts of class treatment under the Rules Enabling Act and the Federal Arbitration Act (FAA) evidence a deep, but undertheorized, convergence. Shady Grove is the latest of the Court’s efforts to map the proper relationship between federal and state law under the Erie and Hanna doctrines. This Article explains how the Court’s arbitration jurisprudence has come to replicate key structural features of the Erie and Hanna doctrines in litigation. The Article then underscores the transnational dimensions of arbitration in our modern world of globalized commerce – one that frames in a new light the holding in Stolt-Nielsen within the context of the Court’s thinking about extraterritoriality and transnational recognition of judgments in litigation. The Article then turns to a case now before the Court – AT&T Mobility v. Concepcion – concerning an arbitration clause that would waive the opportunity for consumers to participate in either a class action or a class arbitration. The Article explains how the approach of the lower courts in Concepcion presents the Supreme Court with the counterpart, in the arbitration setting, to the mistaken application of state law rightly overturned in Shady Grove under the Hanna doctrine. Such a view nonetheless would afford ample latitude for contextual, Erie-like analysis of other arbitration clauses with class waivers tantamount to exculpatory clauses. The Article concludes by situating its synthetic conception of litigation and arbitration within ongoing debate over the proposed Arbitration Fairness Act. The article, slated to be published in Notre Dame Law Review’s Federal Courts, Practice and Procedure issue, 86 NOTRE DAME L. REV. (forthcoming 2011), is currently available for download here on Social Science Research Network. Disputing has been keeping a watchful eye on the forthcoming AT&T Mobility case. We blogged about the case several time this year including: here, here, here and here. Technorati Tags: arbitration, ADR, law
Continue reading...The Fifth Circuit Court of Appeals has held in an unpublished opinion that an arbitration provision in a multilevel marketing program contract which could be amended at the sole discretion of one party and bound the other party “upon notice” was illusory and unenforceable. In Juan Torres v. S.G.E. Management, L.L.C., No. 09-20778, (5th Cir., October 5, 2010), Ignite operated as a subsidiary of a retail provider of electricity in Texas. Ignite relies on a multilevel marketing program which recruits people to invest money to purchase an Ignite Services Program (ISP) through a current member of Ignite. Once a person purchases an ISP, he becomes an Independent Associate (IA). Juan Ramon Torres and Eugene Robison (plaintiffs) purchased ISPs from Ignite and became IAs. In order to become members of Ignite, plaintiffs signed an agreement which contained an arbitration clause. Plaintiffs sued Ignite’s parent company, Stream Energy, and number of other defendants (collectively Ignite) in district court alleging that Ignite’s marketing program constituted an illegal pyramid scheme. Ignite filed a motion to dismiss for improper venue based on the arbitration clause in the parties’ agreement. The district court granted Ignite’s motion to dismiss the case and plaintiffs appealed. Plaintiffs argued the arbitration clause was illusory and thus unenforceable because Ignite could amend the clause “in its sole discretion” and effective immediately. Applying Texas law, the Court explained that “an arbitration agreement can be illusory if a party can unilaterally avoid the agreement to arbitrate.” The Court then determined whether Ignite could, in fact, amend the arbitration clause in its sole discretion and whether such an amendment would become effective immediately. A Terms and Conditions clause in the parties’ contract conflicted with a Policies and Procedures clause because it provided that amendments made by Ignite would be effective upon 30 days’ notice, while the Policies and Procedures section provided that amendments would become binding “upon notice.” The agreement stated, “that ‘in the case of any conflict’ between the Policies and Procedures and other parts of the agreement, ‘these Policies and Procedures will prevail.’” According to the Court, “these provisions conflict, and the provision in the Policies and Procedures governs. Thus, any amendment to the agreement binds the IAs ‘upon notice.’” Finally, the Court examined In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002), J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003), and In re AdvancePCS Health, L.P., 172 S.W.3d 603 (Tex. 2005), decided by the Texas Supreme Court and the Fifth Circuit decision in Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008), which considered the validity of an arbitration clause under Texas law. According to the Court: Here, the arbitration clause may be eliminated or modified “upon notice,” and the agreement contains no clause preventing a modification from applying to disputes arising before the modification. The circumstances are similar to those in Morrison. As in Morrison, “[t]here is nothing in any of the relevant documents which precludes amendment to the arbitration program . . . from eliminating the entire arbitration program or its applicability to certain claims or disputes.” And like Morrison, “[t]here are no Halliburton type savings clauses which preclude application of such amendments to disputes which arose . . . before the amendment.” Ignite essentially could renege on its promise to arbitrate by merely posting an amendment to the agreement on its website. The Fifth Circuit held that Ignite’s promise to arbitrate under the terms of the agreement was hollow and the arbitration provision in the parties’ contract was illusory and unenforceable. The Court reversed the district court’s order dismissing the case for improper venue and remanded the case. Disputing blogged here about In re 24R, Inc., a recent Texas Supreme Court case which also examined In re Halliburton Co. We also blogged here about Morrison v. Amway Corp. when it was decided. Technorati Tags: arbitration, ADR, law
Continue reading...The Dallas Court of Appeals has held that a letter which sought clarification regarding whether the other party to a contract wished to proceed with arbitration as provided for in the contract or whether a claim should be filed before a state district court did not alter the arbitration agreement. In Minkoff v. Hicks, No. 05-10-00606-CV (Tex. App. — Dallas, Oct. 21, 2010), Peter Minkoff entered into a contract to build a residence for Jeffrey Hicks and Lisa Winston (appellees) in July 2002. The contract contained a provision which required arbitration for any dispute arising under the contract and provided the parties with seven days from the notice of any dispute to select an arbitrator. On December 11, 2009, appellees informed Minkoff in writing that they were terminating the contract. On January 20, 2010, Minkoff replied with a letter stating that he tendered performance and the parties owed him $97,000. Minkoff additionally stated that he would settle for $75,000, but also provided the appellees with the option to select an arbitrator in lieu of his settlement offer. Appellees responded by arguing that Minkoff waived his right to seek arbitration by failing to select an arbitrator within seven days of their December 11th letter. Minkoff sent another letter to appellees on January 28th which stated that he intended to pursue his claim and asking that appellees notify him whether they wished to proceed with arbitration or for him to file a claim before a state district court. Appellees did not respond to Minkoff’s letter and instead brought suit against him in Dallas County Court seeking declaratory relief and damages. Minkoff responded and sought an order to compel arbitration. The county court requested a briefing regarding whether Minkoff’s January 28th letter “constituted an offer such that there was a novation or modification [of] the contract when appellees sued in state court.” Appellees argued that the January 28th letter constituted an offer to modify the contract which they accepted by filing in county court. The court agreed and refused Minkoff’s motion to compel arbitration. Minkoff appealed. On appeal, the Dallas Appeals Court held that Minkoff’s letter did not alter the arbitration agreement and that the county court erred by denying his motion to compel arbitration. First, the Appeals Court determined that the letter did not constitute an offer but was a request for information from appellees. Minkoff’s letter did not suggest any intention to waive any of his rights under the contract nor was there any clear terms of an offer. Second, even assuming an offer, it was not clear to the court how appellees filing a lawsuit constituted an acceptance as the letter clearly intimated that Minkoff himself would pursue his asserted rights by either seeking arbitration or bringing suit in a district court, rather than a county court. Finally, the Dallas court held that no a “meeting of the minds” occurred. Because appellees failed to meet their evidentiary burden to establish the arbitration agreement was modified, the Dallas Court of Appeals reversed and remanded the case. Technorati Tags: law, ADR, arbitration
Continue reading...Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.
Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.