Archive for the ‘Arbitration & ADR’ Category

Louisiana 2nd Circuit Reiterates Difficulty in Overturning Arbitration Awards

On May 4, 2010 Author By Scott Wolfe Jr

Check out our Arbitration & ADR category of posts at the Louisiana Construction Law Blog, where we discuss cases and statutes applicable to arbitration proceedings and decisions under Louisiana law.

The treatment of arbitration clauses and arbitration awards in Louisiana under the Louisiana Arbitration Act is very similiar to how such clauses and awards are treated under the FAA (Federal Arbitration Act), in Washington and Oregon, and elsewhere. How? Strictly.

If you sign an arbitration agreement, you’ll likely be compelled to arbitrate. And, as the Louisiana 2nd Circuit, reiterated in a decision this week in Gilbert v. Robert Angel Builder, Inc., when arbitration awards are rendered…the parties are usually stuck with them.

This case originally made headlines in 2008 when the arbitrator destroyed the case record immediately following the arbitration. The plaintiffs filed a Motion to Compel the arbitrator in state court, and argued the arbitrator failed to properly safeguard the evidence.

This original controversy, however, was reduced to a mere footnote by the 2nd Circuit in the decision published this week. The guts of the appellate decision turned on the guts of the Louisiana Arbitration Act insofar as challenges to arbitration awards are concerned….and that means the 2nd Circuit considered this from the Act:

The grounds for vacating an arbitration award are: (A) where the award was procured by corruption, fraud or undue means; (B) where any of the arbitrators evidenced partiality or corruption; (C) where the arbitrators refused to postpone the hearing, upon sufficient cause shown, refused to heard evidence pertinent and material to the controversy, or are guilty of any other misconduct prejudicial to the rights of any party; or (D) where the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made. Quoting La. R.S. 9:4210.

Construing this statute, the 2nd Circuit refused to consider any evidence or argument that spoke to the merits of the decision. They were only curious as to these four factors – all of which have nothing to do with the underlying dispute.

Finding nothing to show that the decision was improperly made (not even the destruction of the record following the arbitration), the arbitration award was confirmed.

Lesson: Arbitration is an alternative to litigation…but remember, its benefits (speed) can also be its warts (finality and lack of appealability).

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

Posted in:     Arbitration & ADR  /  Tags: , , , ,   /   2 Comments

Why Compromise is Sometimes Better Than A Construction Dispute

On April 7, 2010 Author By Scott Wolfe Jr

Over the past two weeks, my construction law blogging buddies over in Virginia published two blog posts that largely draw the same conclusion:   a compromise is sometimes better than a fight.    As an attorney, I know that disputes are oftentimes unavoidable, but attorneys and litigants should think long and hard about compromises whenever they present themselves.

Tim Hughes’ really got me thinking about this topic when he posted “Do You Really Want A Construction Dispute?”   His post, referencing Dovetail Construction’s “Sometimes Things Go Wrong” post, points out the obvious:  sometimes, things go wrong.   In construction, it’s just a casualty of the business.

Tim’s blog post discusses a lot of the things builders can do to avoid or resolve conflict before the dispute escalates into a litigation experience.

Chris Hill of Construction Law Musing‘s  published something that addresses a possible next step:  Construction Mediation is Exhausting, but Worth It!

Even after a dispute escalations into litigation, there’s still the chance to reach a compromise.    The mediation process is confidential, it’s not binding, and if its a complete flop in getting the case settled it at least gets the parties together and helps them prepare their claims for trial.

Here’s my take on why in mediation, the juice is worth the squeeze.

In Litigation, Even Winners Are Losers

I said it.   In most cases, even winners in litigation turn out to be losers.   Why?   Because litigation is really, really expensive.

The high cost of litigation is precisely why a majority of cases settle out of court, and if you’re going to settle out of court, you might as well settle at the very beginning of the case and its expenses, rather than the middle or the very end.

The problem with getting “young” cases to settle is that the parties are still emotional about their positions, and they haven’t spent enough in attorneys fees and litigation expenses to consider cutting bait.    The mediation process is a gift to this type of circumstance.  If the parties are willing to participate in a mediation, the process is designed to keep the party’s emotions out of their decisions and to reach a compromise if possible.

They’re very successful, and they do a good job of relying to both sides that if they go forward and spend tons of money litigating the claim, even winning will be losing.

Your Attorney’s Fees Is Usually Spent Money

So what if you’re spending a lot of money on attorney’s fees, if you can just collect them after winning, right?

Wrong.

There are two reasons why this is largely an incorrect sentiment.

First, remember that a majority of cases settle before trial, and you can be sure that the case doesn’t settle for a “best day in court figure.”   In other words, the party “winning” in the settlement isn’t going to get a pie in the sky deal.  It is called, after all, a “compromise.”   One of the first things to get stripped from the deal?   Attorneys Fees.

Second, attorneys fees aren’t available to most litigants.    This is called the American Rule, and even wikipedia has a page about it stating:

The American rule provides that each party is responsible for paying its own attorneys fees, unless specific authority granted by statute or contract allows the assessment of those fees against the other party.  Under the American rule every party – even the party prevailing – must pay its own attorney’s fees.

In the case of construction disputes, this means that litigants are usually not entitled to attorney’s fees.   As such, every dollar you spend in the litigation, is a dollar less that you’ll ever have.

Mediation gets the parties to the table and does a great job of communicating the American rule to both parties, so they can analyze their risks and make a level-headed decision about whether to proceed.

Litigation Isn’t Always Bad

Litigation isn’t always a bad thing.   Sometimes, the gap between the parties is too great to bridge.   Sometimes, you do have the right to recover attorneys fees, or penalties, or some other type of damages.   Sometimes, the other party’s non-cooperation gives you no other choice.

I guess we can say this in a nutshell:  Litigation isn’t bad when litigation is necessary.

It’s all those times that litigation isn’t necessary that cause problems.  Jumping into an expensive litigation shouldn’t be a reaction.   There are ways to reach a settlement and avoid the legal complications, and if there are ways, you should explore them.   You really don’t want a construction dispute.

Posted in:     Arbitration & ADR  /  Tags: , , , , ,   /   7 Comments

Arbitration May Apply to Non-Signatories

On May 7, 2009 Author By Doug Reiser

The Supreme Court issued a ruling on May 5, 2009, which may further support Washington precedent holding non-signatories to binding arbitration. The ruling was first reported on Davis Wright Tremaine’s Washington Construction Law Blog on May 6, 2009.

In Arthur Anderson LLP v. Carlisle, the Supreme Court found that clients of Arthur Anderson had set up small limited liability companies (LLC) as tax shelters for investments. Those LLCs entered into arbitration agreements with the brokerage as a resolution process for any disputes between the parties. But the individuals, themselves, had not personally executed these arbitration agreements.

The Supreme Court, acting under prior precedent, upheld enforcement of the provisions claiming that the agreement was intended to benefit and both the individual and the brokerage against the individual. Therefore, the court would mandate arbitration of the matter.

Washington Construction Law Blog’s author, John Parnass, cites Davis Wright Tremaine’s own case, McClure v. Davis Wright Tremaine, 77 Wn. App. 312 (1995), whereby the Supreme Court rendered a similar finding, permitting a non-signatory to take advantage of a binding arbitration clause.

The case’s result should provide interesting options to lawyers and contractors wishing to push a less time consuming method of dispute resolution, perhaps even in the arena of lien litigation, which often involves third parties.

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Posted in:     Arbitration & ADR, Federal  /  Tags: ,   /   1 Comment

Arbitration is Stronger in 5th Circuit, but is there a Dark Side?

On March 17, 2009 Author By Scott Wolfe Jr

Does Arbitration Have Warts?

Over the past twenty years, Alternative Dispute Resolution processes like arbitration have become mainstream in the American legal system.

Once considered a creative solution to the expensive and unpredictable legal system, it appears that these ADR procedures may themselves have warts.

The question of whether the “vanishing trial” phenomenon is a good or bad thing is not necessarily a new question…but the latter description does seem to be gaining some steam.

Take for example an interview in this month’s ABA Journal with “Lion of the Bar” Joe Jamail, who had this to say about arbitration and mediation:

Do you know what the root of mediation is?  Mediocrity!  The move to replace jury trials with mediation and arbitration is actually an effort by elitist in our society to control how disputes are decided.

Mr. Jamail isn’t the only one with this opinion of ADR.  In 2007, the Arbitration Fairness Act was introduced to the U.S. Senate and, according to the Wall Street Journal, would effectively do away with mandatory arbitration agreements used widely in many industries.

This legislation and opinion isn’t unprecedented – take, for example, the Brazilian Arbitration Act and its disfavor for arbitration agreements in “contracts of adhesion.” These opinions, of course, notwithstanding the recent study that found arbitration to be mildly favorable to consumers.

Also, remember that one of the most significant changes to the AIA contracts documents in its 2007 edition was to the dispute resolution articles, now allowing parties the option of selecting ADR.

Arbitration Agreements Grow Stronger in 5th Circuit

Despite the rising controversy over whether arbitration and ADR are positive or negative alternatives to traditional litigation, the U.S. Fifth Circuit Court of Appeals published two important opinions this past month regarding agreements to arbitrate.

First, in Agere Systems, Inc. v. Samsung Electronics Co., Ltd, the 5th Circuit held that the question of arbitrability should be decided by an arbitatror, and not the court.

Second, just last week in Citigroup Global Markets, Inc. v. Bacon (appeal from S.D. Tex), the 5th Circuit reserved a district court decision vacating an arbitrator’s award for “manifestly disregarding the law,” stating that the manifest disregard of law by an arbitrator is not a reason to vacate an award.

Law.com published an article about this important ADR opinion, either underlining or exaggerating the ruling by stating:

Abandon all hope, ye who seek to overturn an arbitration award, because the 5th U.S. Circuit Court of Appeals has ruled that manifest disregard of the law by arbitrators is no longer a ground for vacatur under the Federal Arbitration Act.

The 5th Circuit’s March 5 decision in Citigroup Global Markets Inc. v. Bacon will make parties think twice — or three times — before agreeing to submit to arbitration to settle their cases.

What Does It All Mean?

This much appears clear: (a) The role of ADR is growing; (b) the debate of its value rages; and (c) arbitration agreements are stronger than ever.

At the Construction Law Monitor, we have discussed ADR options and their pros and cons. When a dispute arises, it can be costly, lengthly and/or devastating to your company. It’s important for all businesses to consider the dispute resolution options out there.

Whether arbitration is the best option for your business or construction project should not be a foregone conclusion.

Like litigation, arbitration and ADR has its fair share of warts, and with the most recent rulings from the 5th Circuit, those considering arbitration ought be cautious in case the nay-sayers turn out to be right.

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Arbitration: Looking Like a Good Thing for Consumers

On March 11, 2009 Author By Wolfe Guest

Arbitration is looking better and better everyday to consumers. Though it may not seem to have a major impact on the construction industry yet – arbitration agreements are commonplace in your agreements.

It doesn’t matter whether you are a general contractor, subcontractor, supplier, renter, or consumer – the fact is you will likely run into a binding arbitration clause that will require you to bring your claims for product liability, design liability, delivery or installation before a private neutral.

But is this good for you as claimant, or is this one big bad frightening risk of loss?

Recent legislation has been proposed by the federal legislature which would seek to limit arbitration “coercion.” The bill is entitled the Arbitration Fairness Act and has been presented by Congressmen Durbin and Feingold.

The bill’s supporters believe that U.S. consumers have been harmed by being forced to appear before hand-selected arbitration forums caused when vendors place binding clauses in their sales contracts, slips and invoices.The general belief, as put forth by Mr. Nathan Koppel of the Wall Street Journal’s Law Blog, is that arbitration outfits tend to side with corporate defendants in order to shore up continual and future use of their venues.

But a new study by Northwestern Law School suggests that consumers generally come out on top and that their claims are heard in under seven months, far shorter than a state or federal court disposition, which may take up to two years. The study included an examination of a relatively small sample of over 300 cases, and it is uncertain how cases were selected.

The study does show that there is not such a wide discrepancy in rulings, as was once thought to be. You can read about the study on their website, and follow updates of commenting correspondents.

Posted in:     Arbitration & ADR  /  Tags: ,   /   4 Comments
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