It depends… After yesterday’s post, full of legalese, I thought it might be fun to write something a little lighter today. On January 13, 2009, the U. S. Court of Appeals for the Federal Circuit decided Stephen W. Comiskey’s appeal relating to his patent application with the USPTO. Comiskey claimed a method and system for arbitration involving documents like wills or contracts. The court rejected the claims describing the way of conducting arbitration because they claimed an unpatentable mental process. The court, however, remanded the claims which could require the use of a machine, like a computer, as part of the arbitration system. See also Patent Baristas for a review and analysis of the opinion.
Continue reading...In a surprising decision (that almost went unnoticed because of the Holidays and warm Texas weather) arbitration provisions in an employment agreement were found unconscionable by the Texas Supreme Court. In re Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008) involves a retaliatory-discharge claim under the Texas Worker’s Compensation Act (the “Act”) . Justice Brister filed a dissenting opinion. The facts of the case are as follows. In 1998, Johnny Luna entered into an employment contract with Poly-America, LP. This agreement contained an arbitration clause governed by the FAA which provided, among other things, that Luna split arbitration costs with his employer, limited discovery, and eliminated remedies under the Act. In 2002, Luna suffered a severe injury at work and filed a worker’s compensation claim. He returned to work but was fired shortly thereafter. Luna sued for unlawful retaliatory discharge under the section 451.001 of the Act seeking reinstatement and punitive damages and claiming that the arbitration agreement was unconscionable. The trial court granted Poly-America’s motion to compel arbitration and Luna sought a writ of mandamus in the court of appeals. The appellate court found the arbitration agreement unconscionable as a whole. In re Luna, 175 S.W.3d 315 (Tex. App.-Houston [1st Dist.] 2004, no pet.). At Disputing, we have blogged about this opinion. See also Donald R. Philbin Jr. and Audrey Lynn Maness, Fifth Circuit Survey: Alternative Dispute Resolution, 40 Tex. Tech L. Rev. 445 (2008) (discussing unconscionability). The Texas Supreme Court first analyzed unconscionability under the FAA, citing section 2, which provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.“ The court reasoned that state contract law should be applied to decide whether the agreement to arbitrate is valid. Next, it analyzed the issue of unconscionability under Texas law and the purpose of the Act’s anti-retaliatory provisions. Finally, the court addressed the individual arbitration provisions: limitation of remedies, fee-splitting, discovery limitations, prohibition on inquiry, one-year limitations period, lifetime application, and severability. The court concluded that fee-splitting schemes in an arbitration agreement that “operate to prohibit from fully and effectively vindicating statutory rights are not enforceable.” It held that the agreement’s provisions precluding Luna’s remedies under the Act were substantively unconscionable and void under Texas law. However, the court compelled arbitration of the retaliatory-discharge claim.
Continue reading...Hall Street and its progeny may have killed “manifest disregard” but the Second Circuit could have just resuscitated it; well, if you consider zombies as resuscitated beings. In Stolt-Nielsen SA v. Animalfeeds Int’l Corp., the Second Circuit held a court may still review whether an arbitrator manifestly disregarded the law, within Section 10 of the FAA. So is manifest disregard still a standard to be followed by the courts? It appears that if you view it as the Second Circuit did, that is, if you see it contained within Section 10, it is still a ground for reviewing an arbitration award. The Hall Street opinion did keep the terminology of “manifest disregard” alive as long as it is viewed as a term within the scope of Section 10. There is still one major issue that continues to lie cold: whether a court would still not be able to find an arbitrator manifestly disregarded the law if the arbitrator ruled against the parties contemplations but within the realms of Section 10. As Glen Wilkerson noted before in this blog, parties that negotiated their own terms for arbitration may find their expectations thrown out the window if those terms deviated from Section 10. Hall Street’s holding that Section 10 constitutes the exclusive grounds for reviewing an arbitrator’s award would ensure any deviation from the FAA would be barred. So is manifest disregard a mere shell of itself, merely a turn of phrase if you will, or will it continue to live on? We may have to see another case reach the Court in order to fully answer this question, but in the meantime, I happen to think manifest disregard walks around at night feeding off parties’ contemplations and turning them into what courts decide is within Section 10. For more information, please check out these links: http://www.indisputably.org/?p=199 http://www.karlbayer.com/blog/?p=134 http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf
Continue reading...Perry Homes has once again been applied to describe what constitutes an arbitration waiver, except this time no waiver was found. As we have mentioned before in While We Were Out, a post from May, waiver is hard to come by in a Texas Supreme Court opinion. Perry Homes could have moved us into a parallel universe in which claiming waiver of arbitration is a winning argument. But those who criticized the opinion knew we would be making no such move, not because of the particulars involved but because of who the players were. As we wrote about before, Perry Homes was the party seeking waiver and was also a big supporter of many justices of the Court. Many critics of the opinion did not see Perry Homes as precedent for a shift in the court’s policy due to that fact. Well critics, you were probably right. In Fleetwood Homes, the Texas Supreme Court applied Perry Homes, but decided that waiting eight months to compel arbitration, during which time the parties engaged in some discovery and set a trial date (or in this case, postponed it), did not waive arbitration. “[A] party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice.” This quote from Perry Homes sums up the standard that will now be applied by the court in these matters. Gulf in Fleetwood relied on Vesta Ins. Group’s precedent that a party would waive its right to arbitrate when it engaged in “full discovery,” filed motions going to the merits of the case, and sought arbitration “only on the eve of trial.” The court did not, however, agree with Gulf that Fleetwood fit that description. Moreover, the court focused on a party’s detriment as the dispositive issue in cases of arbitration waiver. Because no detriment was found to have befallen Gulf by Fleetwood’s pretrial activities, the court found no waiver. Fleetwood made it clear that unless a party truly waits to the very last minute before trial to compel arbitration, having already engaged in full discovery, no waiver will be found. The fact that Fleetwood had taken no depositions (although it noticed one after canceling it) may have had an impact on the court but the decision hinged on the detriment to Gulf. The court found that Gulf suffered no detriment by trading emails with Fleetwood regarding a trial date. The opinion also pointed out that those emails did not constitute an implied waiver, much less sufficed as evidence for an express waiver as Gulf claimed. Apart from the implications on arbitration waivers, this opinion seriously impacts fee-shifting clauses. The agreement between Fleetwood and Gulf contained a fee-shifting clause which allowed for a prevailing defendant’s attorney fees. Gulf attempted to throw out the arbitration agreement on unconscionability grounds based on this fee-shifting clause, but to no avail. The court found that even though Texas law only allows for prevailing plaintiff’s attorney fees, an arbitration clause that would allow for a prevailing defendant to get attorney’s fees would not make such agreement unconscionable; in fact, it would make it more fair. This statement leaves us to wonder whether we can expect more resistance against arbitration clauses from here on out… Posted by A.C. Vieira For more information, please check out these links: http://www.karlbayer.com/blog/?p=135 http://www.supreme.courts.state.tx.us/historical/2008/jun/060943.pdf http://www.scotxblog.com/orders/order-list-for-6-20-2008/#more-224
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.