At Disputing, we have discussed before the issue of arbitrating with your client. Following ABA’s Opinion 02-425 which permits attorneys to include arbitration of fee and malpractice disputes in retainer agreements, the Professional Ethics Committee for the State Bar of Texas has issued Opinion No. 586. This opinion resolves the question of binding arbitration clauses in lawyer-client engagement agreements under the Texas Disciplinary rules of Professional Responsibility Conduct. Our own Karl Bayer will be a speaker at the TexasBarCLE Webcast Arbitration of Attorney/Client Disputes. We invite you to watch this webcast on Feb 18, 2009 from 10:00 am to 11:30 am. Here is more information.

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.

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.

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