Alternate Dispute Resolution

With increasing frequency, Mediation is being utilized to resolve civil disputes.  The reluctance of parties and attorneys to utilize the services of a neutral third party to facilitate settlement negotiations is slowly fading away and mediation is becoming an accepted part of the administration of civil disputes.  As mediation has become more acceptable, the dialogue has failed to recognize the benefits of using mediation techniques is equally valid when applied to  the criminal justice system.

“Restorative Justice” which is a catch phrase encompassing effort to de-emphasize the punitive aspects of the administration of the criminal justice system, includes, among other things, processes which encourage offender and victim interaction.  The Community Court model invites greater involvement between the party impacted and the criminal defendant during the process of prosecuting the case.  The misdemeanor criminal docket can definitely benefit from the use of the mediation process.  Imagine a system where the criminal defendant and the victim of his crime are encouraged to sit down together as part of the prosecution of the case and express how the experience has impacted them.  In fact, this does happen

There are many “criminal” cases that are ripe for the mediation process.  Take for example, a neighbor who files a criminal complaint against his next-door neighbor who habitually trespasses; landlord-tenant disputes that escalate to a breach of the peace charge; or mischievous teenagers who decide it would be cool to knock down mailboxes.  All of these examples are criminal in nature but do not have to be resolved within the normal confines of the criminal justice system.  Neutral third parties can meet with the parties with the goal of diffusing the situation and creating a better relationship for the future.  In most instances, just “punishing” the offenders does not get to the core of the anti-social behavior that gave rise to the criminal charges in the first place.

Western North Carolina is no stranger to using mediation services to address criminal conduct.  In North Carolina, like elsewhere, citizens can file criminal charges against other citizens for such things as noise complaints, child custody interference, shoplifting, etc.  In these cases, the prosecuting attorney can request that the presiding judge refer the matter to court ordered mediation. (See Smoky Mountain News, November 7, 2018, “Mediation Valuable Service in Criminal Justice System”.).  The jury is still out, but it is highly suggestive that having offenders and victims communicate will lead to a more tranquil society and fewer repeat offenders.

“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

These are the questions that the U.S. Supreme Court answered in the decision published May 21, 2018 in the consolidated cases of Epic Systems Corporations v. Jacob Lewis, Ernest & Young LLP et al v. Stephen Morris, et al, and National Labor Relations Board v. Murphy Oil, USA, Inc, et al.  584 US  ______ (2018).  Simply stated, the Decision answered YES to the first question and NO to the second, so that employers can require workers to settle employment disputes through individual arbitration rather than joining collectively to press their complaints. Justice Gorsuch authored the Decision for the majority   Justice Ginsburg inked a dissent which called the Decision “egregiously wrong”.

Simply stated, the Decision in these consolidated cases resolves the dispute under the Federal Arbitration Act as to whether language in arbitration agreements which mandates individualized claims over concerted or class claims, is enforceable in light of such other federal statutes as the National Labor Relations Act which embraces the concept of collective action to protect individual employees.  Thus, an arbitration clause in an employment agreement which requires individual arbitration of worker’s claims is enforceable.  The arbitration agreements with class action waivers effectively preclude class actions by workers.

The practical effect of this decision is that it will be more difficult for individual employees who have an employment agreement with such an arbitration clause to challenge employment practices which have limited individual value.  Prior to this decision, this limitation could be overcome by asserting class status and asserting the claims on a collective basis which would have greater value and thus worth litigation.

Going forward, employers can require labor and wage disputes to be decided individually, and not allow workers to collectively bring class action lawsuits against their employers.  For employees, if there is an employment agreement with an arbitration provision with contains such language, they need to understand that in the event of a dispute they will have to arbitrate it on their own.

It is not uncommon that after a long day mediating a dispute, the parties finally come to a resolution.  It is also not uncommon that the parties’ Memorandum of Settlement expressly provides that the same mediator resolve any lingering issues to finalize the parties’ settlement. A very interesting decision from the Maine Supreme Court illustrates the risks presented by this provision and the unintended consequences when the parties rely upon the mediator to not only forge the settlement, but thereafter, to interpret and to enforce the settlement agreement.

In Eastwick v. Cate St. Capital, Inc. 2017 ME 206 (ME 2017), the parties had submitted their dispute to mediation and had reached a settlement.  The parties signed a Memorandum of Settlement at the end of the mediation session, which required: Any disputes that may arise during the drafting and execution of the settlement shall be submitted to [the same individual who conducted the mediation] for review and resolution.”  The terms seemed clear when the Agreement was drafted and made sense to the parties’ when they signed it because after a long day spent speaking with their mediator, the parties grew to trust and to rely upon the mediator.

Unfortunately for the parties the matter did not end here.  The parties could not agree on the language of the settlement documents and thus returned to the mediator for “review and resolution.”  One party submitted a proposed order to the mediator, which after hearing the parties, was signed by the mediator.  One party filed the signed Order in court and sought to confirm the Order as an Arbitration Award.  The opposing party filed a countervailing Motion to Vacate arguing that the parties did not agree to arbitrate.  The trial court granted the Motion to Confirm and denied the Motion to Vacate.

In a well-reasoned decision, the Maine Supreme Court held that the clear intent of the parties was to submit disputes arising after the “settled” matter to the individual who mediated the case.  Quoting from the rules of the American Arbitration Association, the Supreme Court defined arbitration as a “voluntary submission of a dispute to a disinterested person or persons for final and binding determination” and held the words “arbitration” or “arbitrate” are not expressly required to conclude that the parties intended to arbitrate a dispute.  Thus what started out as a private mediation resulted in a public decision affirming an Arbitration Award.

The lesson to be learned is that if the parties agree to have a mediator resolve any issues arising from their agreed upon settlement, according to the Maine Supreme Court, such a referral back to the mediator for a final decision converts the mediation to an arbitration and all the rights attached thereto.

In three cases pending before the United States Supreme Court in the upcoming term, the Court will address whether employees can be forced to arbitrate class action employment law claims. The three cases, involving Murphy Oil, Epic Systems and Ernst & Young, highlight the two sides of the debate that have split the Circuit Court of Appeals.  The National Labor Relations Board has taken the position that requiring employees to give up their right to arbitrate class or collective action claims is a violation of the provision of the National Labor Relations Act that protects employees’ rights to engage in concerted activity.

In the key case to address this issue, D.R. Horton, Inc. v. NLRB, the Fifth Circuit Court of Appeals rejected the NLRB’s position. The Fifth Circuit held that arbitration agreements under the Federal Arbitration Act take precedence over the National Labor Relations Act and must be enforced. The Fifth Circuit issued a similar decision in Murphy Oil, which is one of the cases pending at the U.S. Supreme Court. Other Courts of Appeals including the Second Circuit, which includes Connecticut and New York, have agreed taken the same position and rejected the NLRB’s stance.

By contrast, the Seventh and Ninth Circuits, in the Epic Systems and Ernst & Young decisions held that employees’ rights under the National Labor Relations Act would be rendered meaningless if they cannot bring collective actions. This position has been has been supported by 17 States, as well as major unions, the American Civil Liberties Union and the NAACP. Several courts and judges in circuits that have upheld barring class actions in arbitration have expressed similar views and concerns but have felt constrained to follow the precedent in their circuits.

The decision on these three cases likely will provide key insight into the current Supreme Court’s views towards arbitration, employees and the National Labor Relations Act. Oral argument on the case is scheduled for October 2, 2017; a decision is expected in early 2018. The Supreme Court cases are NLRB v. Murphy Oil USA, Inc., Case 16-307; Epic Systems Corp. v. Lewis, Case 16-285, and Ernst & Young, LLP et. al, v. Stephen Morris et. al., Case 16-300. Stay tuned.

In a very noteworthy decision, the Connecticut Supreme Court recently reiterated its long-standing support for arbitration and the great deference it ordinarily gives to the factual and legal determinations of the arbitrators.  In Kellogg v. Middlesex Mutual Assurance Company (326 Conn. 638), released on August 22, 2017, the Supreme Court reversed the trial court which had essentially conducted a trial de novo in order to vacate an arbitration award. The court  said “under an unrestricted submission the arbitrators’ decision is considered final and binding; thus, the courts will not review the evidence considered by the arbitrators nor will they review the award for errors of law or fact.” (emphasis added).  The court specified the limited situations in which an unrestricted arbitration award may be vacated:  “(1) the award rules on the constitutionality of a statute; (2) the award violates clear public policy;  or (3) the award contravenes one or more of the statutory proscriptions of Section 52-418 of the Connecticut General Statutes.”

In holding that the trial court exceeded its authority, the court held that § 52-418 does not “empower a court simply to disagree with the arbiter’s ultimate conclusions on the questions submitted to arbitration.” This decision clearly reiterates that one should not expect to re-try an arbitration case under the guise of a Motion to Vacate.

Every mediation is nothing more than a “facilitated negotiation.”  The mediator attempts to identify the different negotiation styles to determine whether they are compatible or adversarial.  Obviously, if the styles are adversarial, the work of the mediator is more difficult.

Here is a summary of three common negotiation styles. Negotiators would be well served to adopt the style that will produce the best results and avoid the style that will create toxic negotiating atmosphere.

  1. Competitive or Combative Style – In this instance the goal is to “win” regardless of the effect upon the other party.  One who utilizes this style is uniquely focused upon their own outcomes without regard to the consequences to others.    In the context of negotiating a settlement of a legal dispute, this style often appears rigid and uncompromising and often is counterproductive to a settlement unless the other side to the negotiation has reason to settle notwithstanding the combative approach being utilized.
  2. Accommodation Style – This is the opposite to the Competitive Style.  A negotiator who wants to avoid conflict and presents a position that appears to accommodate the demands of the opposition is often characterized as one practicing an accommodation style of negotiation.  On the surface, this may appear to be a weak style; however, that is not necessarily the case.  Granted it is usually not a good idea to counter a competitive style with an accommodating style as it will be perceived as a sign of weakness; however, this style might be appropriately and successfully utilized when the goal is something other than “winning”.  For example, a party to a dispute may determine that fighting the dispute (costs, energy, reputation, etc) may just not be worth it.  It is more important to quickly put the matter behind them so that they can move forward.  In this instance, using an accommodation style may be disarming and may result is a softer and more acceptable response and accomplish that which is desired.
  3. Collaborative Style – This is the classic “Win-Win” approach to negotiations. In this instance a negotiator has taken the time and effort to understand and appreciate not only his own interests but also those of his opposition.   The discussions are focused on identifying a result that accommodates both parties’ needs without either party compromising what is important.  To employ this approach, there has to be a willingness to forego the instinct to prove oneself right at the expense of the other party.  The concepts of win/loose and right/wrong are put aside.  This is sometimes extremely difficult when the negotiations are in the context of a hotly contested litigation.  Likely, the case was commenced and litigated premised upon proving one party right and one party wrong.  A change of focus is required if counsel and the parties decide to work collaboratively to seek a satisfactory result.

One reason that mediation works very well in improving the negotiation process is because it helps defuse the natural conflicts created by differences in negotiation styles.  Mediation is generally set up in a structure that isolates parties from negotiation style conflicts. The most common mediation process tends to take the negotiation style out of the process and reduces the matter to positional shifts and objective statements.

As a mediation progresses from the initial pre-mediation telephone conferences, a skilled mediator identifies the competing negotiation styles of the parties and adjusts the process to accommodate the differing styles. Often, the various styles need a mediator to buffer the interactions and turn a toxic negotiating atmosphere into a successful mediation.  The end game for the mediator remains the same: find a suitable resolution to satisfy the interests of the parties without compromising that which they identify as most important.

Unfortunately, a great number of attorneys do not give a lot of thought when drafting an Arbitration Clause in a contract as a means for resolving any disputes arising under or related to the contract.  They fail to appreciate that the nature and scope of the arbitration and the authority of the arbitrator are case specific and defined by the terms of the Arbitration clause.  The fundamental concept is that arbitration is a self-designed process enabling the parties to structure the process in any way desired.  In Baravati v. Josphthal, Lyon & Ross, 28 F.3rd 704, 709 (7thCir. 1994), Judge Posner pronounced that “…short of authorizing trial by battle or ordeal, or more doubtfully, by a panel of three monkeys, parties can stipulate to whatever procedures they want to govern the arbitration of their disputes; parties are free to specify idiosyncratic terms of arbitration as they are to specify any other terms in their contract.”

With this as a guideline, counsel would be well served to recognize that the substance of the Arbitration Clause is as important, and maybe even more important, than substantive provisions of the contract.  In all likelihood, the contract language will only be revisited in the event of a dispute.  Even if a provider’s set of rules are incorporated, the parties can define such things as Arbitrator selection, scope of discovery, situs of the arbitration, law to be applied, authority of the Arbitrator(s) etc.  For example, absent express authority in the Arbitration clause or the consent of the parties, it is doubtful whether an arbitrator can conduct independent research.  Paul Bennett Marrow, in an article for the New York State Bar Association Journal (May 2013), argues persuasively that absent specific authority from the parties, either in the Arbitration clause or from the parties to the dispute, an Arbitrator lacks the authority to conduct independent research and, if he does such research, he might be jeopardizing the award.

Here is an abbreviated, certainly not all inclusive,  checklist of topics that might be considered when drafting an Arbitration Clause:

  • Number of arbitrators
  • Arbitrators Qualifications
  • Locale Provisions
  • Discovery
  • Documents-Only Hearing
  • Duration of Arbitration Proceedings
  • Remedies
  • Assessment of Forum Fees and Attorneys’ Fees
  • Type of Award
  • Confidentiality
  • Non-Payment of Arbitration Expenses

A useful tool in drafting Arbitration Clauses is the American Arbitration Association’s Clause Building tool.

Most counsel and parties do not want to focus upon the dispute resolution clause when drafting a contract for it shines a light on a potential dispute at a time when the parties are trying to make a deal.  That being said, it is still important to clearly define the process of the arbitration should one be necessary.  Failure to do so will leave the parties with a dispute resolution process that might not meet the needs of the parties.