Effective January 2, 2019, the Judicial Branch of the State of Connecticut has formally entered the world of virtual mediation with the introduction of a pilot in the Judicial Districts of Hartford and New Haven to help resolve contract collection cases.  More accurately, it has entered the world of Online Dispute Resolution (“ODR”).  ODR started in the mid-1990s to primarily address e-commerce disputes.  Its potential universality has gained popularity ever since. It is viewed as an inexpensive, user friendly methodology to resolve mostly contract disputes.  Sponsors of an ODR platform, such as the Connecticut Judicial Branch, have latched onto the process and conformed it to the identified needs.

It would be erroneous to consider the new Connecticut ODR strictly as an online mediation service.  It is that and more.  It is a combined mediation and arbitration process.  It contemplates a three-step process:

Step One:  Agreement by all parties to participate

Step Two:  Submission by all parties of claims, defenses and documentary evidence to support these positions

Step Three:  Resolution by the parties facilitated by a designated court mediator; however, if a resolution of the dispute cannot be reached, a different judicial authority will take the written submissions along with any evidence submitted during the mediation process and decide the case

The Judicial Branch has taken a bold step in increasing access to the courts for those with disputes that might not warrant the time and expenses of a formal lawsuit.  The branch has also displayed an understanding of the “med-arb” process where a matter can start as a mediation and conclude with a third party making the decision because the parties were unable to resolve the dispute.  Normally the “med-arb” process raises difficult ethical concerns when the same third party who attempts to mediate a dispute is tasked with being the final decision maker.  The Branch has eliminated these concerns by designating different judicial resources when providing mediation services as opposed to adjudicative services.

For more information, go to the State of Connecticut Judicial website, www.jud.ct.gov , and forms JD-CV-165 (New 12-18), JD-CV-166 (New 12-18), JD-167 (New 12-18), JD-CV-168 (New 12-18) and JD-CV-169 (New 12-18).

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.

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.  https://www.clausebuilder.org/

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.