By Brett Goodman The background rule for enforceability of mediated settlement agreements, as described in the Texas ADR Act, provides that the settlement agreement is enforceable as any other contract, and the court may incorporate the terms of the settlement agreement into the court’s final decree. See Tex. Civ. Prac. & Rem. Code Ann. § 154.071. Although the settlement agreement arises from the suit, enforcement of a mediation agreement, even if reached through court-ordered mediation, must be determined in a breach-of-contract cause of action under normal rules of pleading and evidence. See Cadle Co. v. Castle, 913 S.W.2d 627 (Tex. App. – Dallas 1995, writ denied). Thus, any mediated settlement is enforceable as a contract. See Hardman v. Dault, 2 S.W.2d 378, 380 (Tex. App. – San Antonio 1999, no pet.) (citing C.P. & R.C. § 154.071(a)). A wrinkle is added in to this provision of the Texas ADR Act when reconciling with Rule 11 of the Texas Rules of Civil Procedure, which states, “Unless otherwise provided in these rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” Tex. R. Civ. P. 11. Though Rule 11 has antiquated roots in avoiding litigation, the recent proliferation of mediation has created a conflict between a largely unchanged rule from over a century ago being applied to a relatively new practice. See Kennedy v. Hyde, 682 S.W.2d 525, 526 (Tex. 1984). In Kennedy, the court made a first order determination that settlement agreements must comply with Rule 11 regardless of Rule 11 originating from before 1900. Id. at 530. Eleven years after the Kennedy decision, however, the Supreme Court of Texas was able to finagle a way around the constraints of the Kennedy court through semantics concerning the filing requirement of Rule 11. See Padilla v. LaFrance, 907 S.W.2d 454, 461 (Tex. 1995). The agreement in Padilla had been signed as required by Rule 11, but the Court did not find important when the agreement was filed, thereby minimizing the strictness of Rule 11. See id. Following Padilla, then, mediation settlement agreements should comply with Rule 11’s three requirements to be valid, but there is wiggle room within the application. See id. With this background on Rule 11, some case law can be considered. Recent case law shows instances of both upholding and striking down mediated settlement agreements for various reasons. In Castano, the San Felipe Company ran water through a ditch on Castano’s land, leading to a cause of action for trespass as well as claims for emotional distress. See Castano v. San Felipe Agric., Mfg., & Irr. Co., 147 S.W.3d 444, 446 (Tex. App. – San Antonio 2004, no pet.). After San Felipe altered the mediation agreement and Castano did not agree, San Felipe filed and was granted a summary judgment motion against Castano for breaching the settlement agreement. Id.The higher court dismissed the issue fairly quickly; noting that mediated settlement agreements are to be enforced as contracts, the court found there was a valid agreement signed by both sides and so Castano was bound by said agreement. Id. at 451. Mediated settlement agreements are not the final word of authority and can be superseded by other means. See Pickell v. Guar. Nat. Life Ins. Co., 917 S.W.2d 439, 440 (Tex. App.–Hous. [14th Dist.] 1996, no writ). Guaranty Life Insurance Company filed suit against Pickell, an insurance salesman, for tortuous interference stemming from alleged purposeful misstatements Pickell made to policy holders. Id. Although a mediated settlement agreement seemed to have been reached, certain documents were not returned to Guaranty, leading to a default judgment being entered against Pickell at trial when he did not appear at trial relying on the apparent settlement. Id. Noting its sympathy toward Pickell’s plight, the court still determined that Pickell was required to be at trial in spite of the perceived mediation agreement. Id. at 443. “Although most judges probably would have inquired further and attempted to contact Mr. Pickell to find out why he was not at the pre-trial conference or trial, or to inquire further about the settlement,” the court admitted, “a trial court is not required to take such steps when a litigant fails to appear for the pre-trial conference or trial.”Id. A recent mass tort litigation case is similar to Pickell, in that, although an agreement pursuant to Rule 11 seemed to be reached, it did not designate a specific dollar amount, meaning that defendants were not bound to any mediation settlement agreement. See Authorlee v. Tuboscope Vetco Intern., Inc., 274 S.W.3d 111, 121 (Tex. App. — Hous. [1st Dist.] 2008, pet. denied). Technorati Tags: law, ADR, arbitration Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.

The following bills relating to alternative dispute resolution and health care were introduced by the 82nd Texas legislative session. The last day of the regular session was Monday, May 30, 2011. Click on the bill number to read its text and on the status link to find the bill’s legislative history. I. ADR Bills that Passed SB 1216 provides that a court “may order arbitration only if the court determines that the contract containing the agreement to arbitrate is valid and enforceable against the party seeking to avoid arbitration.” Bill status. The bill analysis, as introduced, explains that: Where evidence can be produced demonstrating that a party was defrauded or forced into signing an arbitration clause, the courts refuse to compel arbitration. However, due to the questionable holding of the United States Supreme Court in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967), the foregoing is not true in cases where the arbitration clause is part of a larger contract. Under the holding of Prima Paint, if A holds a gun to B’s head and forces him to sign a contract with 15 terms, one of which is an arbitration agreement, the case will be referred to the arbitrator specified in the contract. The courts treat the contract as valid even though it was obtained at gunpoint. Worse, the issue of the contract’s validity must then be tried by the arbitrator specified by the invalid agreement, who is not likely to be impartial if B was enough of a bad actor to pull a gun on A in the first place. This is an illogical inversion of the entire theoretical underpinning of arbitration. If A did not agree to the entire contract, how can he be said to have agreed to a provision contained therein? A person who is tricked or forced into signing an arbitration agreement has not voluntarily surrendered his right to appear in court. SB 218 relates to procedures in certain suits affecting the parent-child relationship and the operation of the child protective services and foster care systems. The bill would affect mediated agreements in family law cases. Bill status. SB 529 relates to the regulation of motor vehicle dealers, manufacturers, and distributors. The bill would require the board of the Texas Department of Motor Vehicles, in an action brought against a manufacturer or distributor by a franchised dealer whose franchise provides for arbitration, to order the parties to submit the dispute to mediation. Bill status. HB 1887 relates to tax administration of and procedures for property tax protests and appeals. The bill requires the district court, on motion by a party to an appeal, to enter an order requiring the parties to attend mediation and authorizes the court to enter an order requiring the parties to attend mediation on its own motion. Bill status. [UPDATE:] H.B. No. 1951 relates to the continuation and operation of the Texas Department of Insurance. The bill requires the Insurance Commissioner to develop and implement a policy that encourages the use of alternative dispute resolution. Bill status; analysis. II. Health Care Bills that Passed HB 300, the Texas Medical Privacy Act, relates to the privacy of protected health information; providing administrative, civil, and criminal penalties. The Act expands the protections mandated by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Find the HRO Bill Analysis here. III. ADR Bills that Did not Pass HB 911 relates to the application of foreign laws and foreign forum selection in this state. The goal of HB 911 is to require a court in Texas to uphold and apply only the laws ordained by the constitutions and laws of the United States and the State of Texas with regard to family law matters, prohibiting any other interpretation by Texas courts. Bill status. Similar to HB 1240; bill status. HB 3087 relates to payment for services provided by certain physicians and health care providers to individuals covered by managed care plans. Bill status. HB 1150 relates to an affidavit required to be filed in a cause of action against a licensed attorney. Bill status. SB 562 relates to the waiver of sovereign immunity for certain claims arising under written contracts with state agencies. Bill status. HB 3794 relates to disputes under insurance policies. Bill status. HB 3444 relates to required disclosure for appointment of certain impartial third parties. Bill status. SB 1508 relates to the right of certain debtors to elect to mediate a dispute before the debt is accelerated or a contract lien on real property is foreclosed. Bill status. SB 1432 relates to the operation of the Texas Windstorm Insurance Association and to the resolution of certain disputes concerning claims made to that association. The bill would require in bold face type, a conspicuous notice concerning the mandatory arbitration of coverage and claim disputes. Bill status. Similar to HB 272; bill status. SB 1328 relates to optional dispute resolution methods for school districts and parents of students seeking or receiving special education services. Bill status. HB 3024 relates to the Fair Access to Insurance Requirements (FAIR) Plan. The bill would required a person who holds a policy issued by the association may not serve as an arbitrator or judge in an arbitration or judicial or administrative proceeding in which the association is a party. Bill status. Technorati Tags: arbitration, ADR, law

By Glen M. Wilkerson The facts and holdings in Karlseng v. Cooke, Tex. App. – – Dallas, June 28, 2011 (Cause # 05-09-01002-CV) are instructive technically in ethics, in the law of “evident partiality” in arbitration law, and as an illustration how influence is peddled sub rosa through out judicial / legal system. What is alarming is that this case shows how the Rule of Law with a relatively non-partisan decision maker is ultimately fragile and subject, seemingly on a moment’s notice, to disintegration. In Karlseng, a $22 million dollar award was vacated in that the lead arbitration lawyer for the victor and the sole arbitrator neutral had a long relationship going back to the lawyer’s federal clerkship’s days when the arbitrator was the magistrate judge in the same federal district court. The contacts included social contacts, dinners, $1,200.00 Dallas Mavericks tickets, and $1,000.00 dinners after the arbitration award in December of 2007. None of this was disclosed. The victor’s lead lawyer – – though with the same Firm – – appeared in the arbitration case after the conflict partiality disclosures had been made by the neutral. No supplementation of the JAMS disclosure forms were made by the Arbitrator after the lawyer friend appeared for the Plaintiff victor. Victor’s lawyer had followed the same practice involving the same neutral in a prior victorious case – – enter case after original disclosures were made with no supplementation. The arbitration hearing took place in December of 2007. Four and a half years later, the award was vacated by the Dallas Court of Appeals. The losing Defendant showed incredible perseverance and determination. The trial court first denied Defendant any meaningful discovery. Defendant had to appeal, have the award vacated, and discovery on partiality permitted. See Karlseng v. Cooke, 286 S.W. 3d 51 (Tex. App. – – Dallas 2009, no pet.). Back in the trial court and after discovery and a much longer hearing, the trial court again confirmed the award. This time – – June 28, 2011 – – the award was vacated as the Dallas Court held that, as a matter of law, “evident partiality” had been shown. In my opinion, this case should never have reached the Court of Appeals. That it did raises a red flag as to how low we have stooped in terms of permitting favoritism or the appearance of partiality to become so rampant as to be the “new normal” and hence permissible. The Dallas Court of Appeals applied the Rule that vacatur is required where the neutral arbitrator exhibited evident partiality by failing to disclose facts which might, to an objective observer, create a reasonable impression of his partiality, relying on Burlington v. TUCO, 960 2d 626, 629 (Tex. 2007) (award vacated). See similar discussion on all issues in Amoco D.T. Co. v. Occidental Petroleum Corp., — S.W.3d —-, 2011 WESTLAW 1843527 (Tex. App. – – Houston [14 Dist.] May 17, 2011) (award vacated). Full discussion and reliance on Justice Black’s and Justice White’s opinion in Commonwealth Coatings v. Continental Casualty, 393 U.S. 145 (1968). See Merrick T. Rossein & Jennifer Hope, Disclosure and Disqualification Standards for Neutral Arbitrators: How Far to Cast the Net and What Is Sufficient to Vacate Award, 81 St. John’s L. Rev. 203, 212–13 (2007) (discussing split among federal circuits). See the lead case in the Fifth Circuit, Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278, 281–83 (5th Cir.2007) (en banc) (9-6) (award not vacated on partiality grounds and explaining that the majority of federal circuits have concluded that Justice Black’s opinion is a non-binding plurality decision and the opinion of Justice White with “less rigor” should control). Any fair reading of the opinion of the Court of Appeals make it crystal clear that the neutral was grossly at fault in not supplementing the JAMS disclosures to reveal the social contacts, the lavish dinner / Mavericks games etc. The outcome is not surprising to an objective observer. What is striking is that a trial court did not agree, and that the loser at arbitration had to go to these lengths to get relief. Hopefully this is over, and the parties can start from scratch, this time in a fair fight. Technorati Tags: law, ADR, arbitration Glen M. Wilkerson is Of Counsel at Davis & Wilkerson, P.C. where he focuses on the areas of Personal Injury Law, Insurance Law & Litigation, Construction Law & Litigation, Commercial Litigation, Civil Litigation, and Professional Liability. Mr. Wilkerson holds a J.D. from The University of Texas and a B.S. from The University of Texas-Arlington. He may be reached at: gwilkerson@dwlaw.com.

On June 30, 2011, the U.S. Court of Appeals for the Second Circuit remanded Fensterstock v. Education Finance Partners for initial consideration of the arbitration issues. Fensterstock involves a class-action and class-arbitration waiver provision in a promissory note of a law student loan. Read more here. Following is the summary order: In Fensterstock v. Education Finance Partners, 611 F.3d 124 (2d Cir. 2010) (“Fensterstock II“), vacated and remanded, 131 S. Ct. —. (2011), No. 10-987, 2011 WL 338870 (U.S. June 13, 2011), this Court affirmed the judgment of the United States District Court for the Southern District of New York, see 618 F.Supp. 2d 276 (2009) (“Fensterstock I“), denying defendants’ motion to compel arbitration, holding that the arbitration clause of the promissory note at issue was, because of its class-action and class-arbitration waiver provision, unconscionable under Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P.3d 1100 (2005)(“Discover Bank“), and its progeny. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court of the United States ruled that “California’s Discover Bank rule is preempted by the [Federal Arbitration Act, 9 U.S.C. § 1 et seq.].” 131 S. Ct. at 1753. Accordingly, the Supreme Court has vacated this Court’s decision in Fensterstock II and remanded for further consideration in light of AT&T Mobility LLC v. Concepcion. See Affiliated Computer Services. Inc. v. Fensterstock, 131 S. Ct. — (2011 ), No. 10-987, 2011 WL 338870 (U.S. June 13, 2011) (“Fensterstock III“). In Fensterstock II this Court, having ruled that the arbitration clause was unenforceable under Discover Bank, declined to reach either (a) plaintiffs contention that defendant-appellant Affiliated Computer Services, Inc. (“ACS“), as a nonparty to the agreement containing the arbitration clause, lacks standing to compel plaintiff to submit his claims to arbitration, or (b) ACS’s contention that plaintiff, who asserts claims against ACS under that agreement, is estopped from raising that standing issue. See Fensterstock II, 611 F.3d at 130-32. Because the Discover Bank rationale is no longer viable, and because the district court in Fensterstock I likewise had not reached the merits of plaintiffs standing contention or ACS’s defense to that contention, see 618 F.Supp.2d at 280, we hereby REMAND this matter to the district court for initial consideration of those arbitrability issues, as well as any other issues that are not foreclosed by Fensterstock III. Any new appeal in this matter from the district court’s decision on the remanded issues as to arbitrability shall be referred to this panel. Technorati Tags: law, ADR, arbitration