Drafting the Arbitration Provision in Commercial Contracts: Back to Basic

More and more cases are being submitted to arbitration as a result of pre-dispute contractual clauses, point out John P. DiBlasi and Jacqueline I. Silvey in an article for National Arbitration and Mediation.

“In other words, at the time of entering into the contract, it is wise to make sure the contract contains a clause that provides for arbitration in the event of a future dispute,” they write. “These clauses are found in all types of agreements and in a myriad of contract forms involving construction, consumer financing, employment, insurance, rendering of professional services, sale of goods, and others.”

The article covers the basics of the arbitration clause and the administration of the process in a dispute.

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An Arbitrator’s Power May Be Greater Than That of a Judge

Arbitration is a creature of contract, and an arbitrator’s powers are in effect defined by the parties’ arbitration agreement, points out a post on the Mintz, Levin, Cohn, Ferris, Glovsky and Popeo blog ADR: Advice From the Trenches.

“Paradoxically, although an arbitration agreement can be written (double-spaced) on one side of a cocktail napkin, in some cases it may grant greater authority to an arbitrator than a judge has,” writes Narges Kakalia.

In the post, she discusses Timegate Studios, Inc. v. Southpeak Interactive, LLC, in which the Fifth Circuit confirmed an arbitration award in which the arbitrator substantially reformed the parties’ commercial agreement by, among other things, awarding one a broad perpetual license to certain of the other’s intellectual property, despite the fact that the original agreement had granted only a more narrowly drawn ten-year license.

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Reducing the Cost of Arbitrating Large Complex Cases

The American Arbitration Association has introduced the Streamlined Three-Arbitrator Panel Option to help parties in large cases lower the costs and escalate the speed of the dispute resolution process.

“When parties’ agreement calls for three arbitrators to hear and decide their case, the Streamlined Three-Arbitrator Panel Option allows them to utilize a single arbitrator for the preliminary and discovery stages of a case,” the AAA explains on its website. “The full panel of three arbitrators then participates in the evidentiary hearing and renders the final award—a more efficient and less expensive process.”

On its website, the AAA describes the three options and alternatives available.

Get more information.




Benefits and Challenges of Robotized Arbitration

Artificial Intelligence - AI and  of Hogan Lovells point out that we are living in the era of constant technological progress, and then ask the question: As smart contracts emerge, why not think about totally automated arbitration?

“Big data and e-discovery can assist counsel in document management and reduce the risk of human error during discovery,” they write for an article for Bloomberg Law.

They discuss machine learning, predictive justice, and sophisticated programs that can even analyze the behavior of specific judges and arbitrators to predict their propensity to grant or deny certain motions and claims.

“This may open arbitration to new markets, such as low value disputes, whose players were traditionally reluctant to resort to this type of resolution,” they write.

“While it is possible to envision completely robotized arbitration taking place in a not-so-distant future, that sort of arbitration would not be recognized by state institutions. If the arbitration occurs in a self-contained, self-executing framework, then its nonrecognition by state institutions may not be a major obstacle,” the authors conclude.

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Are Your Employees’ Electronically-Signed Agreements Enforceable?

Drew York, writing in Gray Reed & McGraw’s Tilting the Scales blog, offers some advice on how to “failsafe” electronic agreements with employees.

He describes a scenario in which a company requires its employees to electronically acknowledge receiving, reviewing and agreeing to abide by the company’s employee handbook. One of the workers later is injured on the job, and the company wants to invoke the handbook ‘s arbitration agreement.

“In several recent cases, employees have disputed that they electronically acknowledged an agreement with their employer,” writes York. “This raises an intriguing question: how do employers prove that an employee ‘signed’ an agreement when there is no written signature?”

Read the article.



Gig Worker’s Hopes of Arguing Case in Court Are Dashed By Arbitration Agreement

Fisher & Phillips LLP reports that a delivery driver for gig economy company DoorDash has been ordered by the 5th Circuit Court of Appeals to take his misclassification case to a private arbitrator instead of court pursuant to a valid arbitration agreement he entered into.

“The April 25 decision is a solid win for gig employers and could provide a template for how other similar businesses should structure their own arbitration agreements,” writes Richard Meneghello.

Delivery drivers for DoorDash are classified as independent contractors, but one driver filed suit, claiming wage and hour violations, and sought conditional class certification.

“If there is an agreement to arbitrate with a delegation clause…, we will consider that clause to be valid and compel arbitration. Challenges to the arbitration agreement as a whole are to be heard by the arbitrator,” the 5th Circuit said.

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Arbitrability Basics: An Illustration of the ‘Autonomy’ Principle

When considering an arbitration clause in a contract, one must always bear in mind the “separability” or “independence” of the arbitration agreement — the autonomy principle, writes Narges Kakalia in the ADR: Advice From the Trenches blog of Mintz Levin.

She asks: “For example, should a plaintiff be compelled to arbitrate a dispute if the contract containing the ADR clause has expired? What if the contract containing the arbitration clause is unconscionable as a matter of public policy? A plaintiff may nonetheless be compelled to arbitrate in order to resolve his dispute, as illustrated recently in a decision by the U.S. District Court for the Northern District of Texas.”

She discusses Athas Health, LLC v. Giuffre and explains how the court reached its decision.

Read the article.



Do You Know Who Will Decide Whether Your Next Dispute Is Subject to Arbitration?

In a client alert, Pepper Hamilton surveys the effects of incorporating an arbitration provider’s rules or common arbitration provisions on who determines questions of arbitrability.

“While questions of arbitrability are ordinarily decided by a court, contracting parties can agree to delegate questions of arbitrability to an arbitrator instead,” the alert explains. “Because an arbitrator deciding questions of arbitrability is contrary to the ordinary course of events, contracting parties must express their intent to delegate questions of arbitrability to an arbitrator ‘clearly and unmistakably.’ When doubt exists as to the parties’ intent to ‘arbitrate arbitrability,’ the FAA’s presumption in favor of arbitrability is reversed.”

The authors conclude: if you want a court to decide whether, and to what extent, your dispute is subject to arbitration, you must be mindful of the impact that incorporating an arbitration provider’s rules or a broad arbitration provision into your agreement can have on the question of who will decide arbitrability.

Read the article.




Dissecting Common Basic Arbitration Clauses – You Can Build a Better One

Arbitration - meeting- conferenceA well-designed arbitration clause can give the parties substantial control over procedures and costs, as well as over who decides which issues and when, writes Daniel Pascucci in the blog ADR: Advice from the Trenches.

But, the Mintz, Levin, Cohn, Ferris, Glovsky and Popeo lawyer warns, all too often parties make agreements that leave the decisions on most of their options to others or to chance.

In his article, he dissects the generic arbitration clause, and describes what an arbitration clause should do and what it can do.

“Arbitration’s promise of being faster, more efficient, and more predictable than judicial litigation should be viewed as conditional – if the parties are willing to put in the effort to design a suitable process, arbitration can deliver on its promise,” Pascucci concludes.

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Supreme Court to Clarify Applicability of Arbitration Act to Transportation Contracts

The U.S. Supreme Court has granted certiorari in New Prime Inc. v. Oliveira, which should provide guidance as to the circumstances in which the Federal Arbitration Act (FAA) applies to interstate transportation workers who are purported independent contractors, according to the Transportation Blog of Holland & Knight.

“The case will be important for in-house and private transactional attorneys who draft contracts with transportation sector independent contractors, as well as litigators handling employee misclassification cases,” the article’s authors write.

They explain: “Over the past several years, a spate of class action litigation has targeted the long-standing use of owner-operator truck drivers as independent contractors, with drivers claiming that they should be classified as employees. The contract between the motor carrier and the driver often contains an arbitration clause, but drivers typically file these cases in court, leading to a fight over the proper forum.”

Read the article.



Long-Running Construction Defect Fight in Texas Ends With Defense Win

A decade-long construction defect battle involving a South Padre Island, Texas, luxury condominium complex damaged during Hurricane Dolly has been resolved in a take-nothing defense win secured by attorneys of the West Mermis law firm for the general contractor, G.T. Leach Builders.

The condominium developer, Sapphire, initially sued its insurance brokers for negligence for allowing the builder’s risk insurance policy to expire, leading to claims for extensive damage to the Sapphire condominium project from the 2008 storm. Nearly three years later, G.T. Leach and several of its subcontractors were added to the $30 million lawsuit.

The trial team, led by Lawrence J. West, presented evidence proving that the developer’s allegations of multiple breach of contract claims were unsupported, according to the firm. They demonstrated that the contract contained express provisions that prevented the Developer from recovering the $30 million it was demanding.

Read details of the case.



Claim of Fraudulent Inducement of a Construction Contract Does Not Invalidate Arbitration Clause

Pepper Hamilton LLP’s Constructlaw blog discusses an Ohio case in which a plaintiff sued a building company and attempted to have the arbitration clause in a construction contract declared unenforceable.

The contract identified the builder in the case by a name that was a fictitious name for a similarly named company and was not registered with the Ohio secretary of state, writes Emily D. Anderson. The trial court denied plaintiffs’ motion to invalidate the arbitration clause.

The appellate court agreed with the trial court, observing that the builder did not initiate the action but was merely defending it.

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Sexual Harassment Roundtable: Practical Guidance for Employers

Wolters Kluwer Legal & Regulatory U.S. announced that registration is open for a relevant and timely webinar to provide employers with practical guidance on sexual harassment policies.

The 60-minute webinar, titled “Sexual Harassment Roundtable: Practical Guidance for Employers,” will be Thursday, March 1, 2018, beginning at 1 p.m. EST.

The event will feature experts from law firms in employment and labor law.

Topics will include:

  • Why sexual harassment remains a persistent workplace problem
  • The types of sexual harassment allegations that can be trickiest for employers
  • Pros and cons of using nondisclosure clauses in settlement agreements
  • How mandatory arbitration impacts sexual harassment claims
  • Best practices for preventing sexual harassment and handling allegations when they do arise

Register for the webinar.




‘Home Country’ Arbitration Clause More Trouble Than It’s Worth?

International business - globe -worldAn agreement between two parties involved in an international contract may involve a mechanism, known as the “home country” provision, that provides that the party initiating arbitration must sue the other party in its home country.

A post of the website of Skadden, Arps, Slate, Meagher & Flom explains that “proponents of such clauses say they provide a disincentive to elevate disputes because a party will be reluctant to go to the other side’s home country. Though they are not widely used in large transactions (and are not recommended in arbitral literature or by arbitral institutions), they are occasionally present.”

The authors discuss two cases that illustrate that “home country” arbitration clauses may prove cumbersome to administer in practice and may result in unintended consequences for the parties.

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On Remand, District Court Breaks New Ground by Vacating Arbitrator’s Class Certification Award

In what appears to be a first-of-its-kind ruling, the District Court for the Southern District of New York recently concluded that a federal district court has the authority to vacate an arbitrator’s class certification award based on the due process rights of absent class members, according to a post on the website of K&L Gates.

The ruling involves the long-running Jock v. Sterling Jewelers, Inc., in which the district court and the Second Circuit Court of Appeals have rendered multiple decisions addressing the proper role of a court in reviewing an arbitrator’s authority to determine whether parties have agreed to class arbitration.

The K&L Gates authors explain that the Jock court determined that, absent an express class arbitration provision in each putative class member’s arbitration agreement, an arbitrator does not have the authority to bind absent class members to a class judgment—even if they signed the same form of arbitration agreement as the named plaintiffs.

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Employer’s Notice of Mandatory Arbitration Program May Be Insufficient to Compel Arbitration

Employment contractA Sixth Circuit ruling in a recent case shows that an employer’s notice of its institution of a mandatory arbitration policy or program is, without more, insufficient to compel an employee to arbitrate a subsequent dispute, writes Gilbert Samberg in Mintz Levin’s ADR: Advice From the Trenches blog.

He explains that something more is required in order to be able to infer the employee’s knowing assent to the new term of employment. The new “Employment Dispute Resolution Process” (EDRP) was promulgated after the plaintiffs had commenced employment.

Samberg writes that the appellate court “determined that the employer’s failure to notify the employees expressly that ‘they would accept the terms of the EDRP by continuing their employment’ was a critical omission, and thereupon held that the employees had not manifested knowing assent merely by continuing to work at FCA.”

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SEC Weighs a Big Gift to Companies: Blocking Investor Lawsuits

In its determination to reverse a two-decade slump in U.S. stock listings, the SEC might offer companies an extreme incentive to go public: the ability to bar aggrieved shareholders from suing, reports Bloomberg.

The Securities and Exchange Commission has privately signaled that it’s open to at least considering whether companies should be able to force investors to settle disputes through arbitration, an often closed-door process that can limit the bad publicity and high legal costs triggered by litigation, writes Benjamin Bain.

“But allowing companies to shield themselves from shareholder lawsuits would almost certainly enrage investor advocates and Democratic lawmakers, a combination that helped defeat a 2012 attempt by private-equity giant Carlyle Group LP to prohibit investor suits as part of its IPO,” Bain explains.

Read the Bloomberg article.



The Ten Arbitration Trends Of 2017

Liz Kramer, writing in Stinson Leonard Street’s Arbitration Nation blog, provides a rundown of the top 10 developments in arbitration law during the past year.

“2017 was a big year in arbitration law,” she writes. “We went from a country that seemed on the verge of banning arbitration in most consumer and employee contracts to a country whose federal policy embraces arbitration in nearly every context.”

Among the trends she discusses are cases on regulation reversal, preemption, the NLRB, small claims court confusion, statutory preclusion, non-signatories getting divergent results, and more.

Read the article.




Governing Law and Jurisdiction or Forum Clauses Same Country/Different Country? How to Decide

Globe - InternationalContract drafters sometimes confuse governing law clauses and jurisdiction clauses, according to a post on the website of Wilk Auslander.

Karen A. Monroe and Olga Larionova explain those clauses are related but are not the same. There is a greater likelihood of confusion or overlap in the context of international contracts, versus domestic contracts.

Their article presents a sample governing law clause, as well as a sample juristiction/forum selection clause for dispute resolution by courts and not by arbitration.

Read the article.



How Forced Arbitration and Non-Disclosure Agreements Can Perpetuate Hostile Work Environments

Non-disclosure agreements are part of an arsenal of legal tools that employers have at their disposal to protect their reputation and their bottom line — but those tools often come at the expense of wronged employees, writes Michelle Chen in an article for The Nation.

She also discusses the use of forced arbitration that requires employees to channel their workplace disputes through an extralegal negotiation process, rather than through the courts.

She adds:

According to the National Women’s Law Center (NWLC), both forced arbitration and NDAs have in many workplaces become a standard tactic to preempt workers from taking legal action or disclosing sexual-harassment and -assault charges. These agreements force workers to sign away their rights in exchange for a job, by making them agree to settle future disputes outside the courts through an opaque negotiation process controlled by management and lawyers—effectively sentencing women to silence before they ever step into a courtroom.

Read the article.