On February 18, 2011, The Northern District of Texas issued a Temporary Restraining Order (TRO) enjoining multiple arbitration proceedings before the Financial Industry Regulatory Authority (FINRA) in Billitteri v. Securities America Inc., et al., No. 3:09-CV-01568-F and related cases, (N.D. Tex., February 18, 2011). In the case, a group of representative plaintiffs in a class action lawsuit jointly filed a Motion for Preliminary Approval of a partial class action settlement with settling defendants from the financial services industry. The representative plaintiffs also filed a Motion for a Temporary Restraining Order to enjoin three scheduled FINRA arbitration proceedings because the plaintiffs in the arbitration proceedings were also members of the proposed class. The representative plaintiffs cited the All Writs Act, 28 U.S.C. § 1651(a), and claimed that allowing the scheduled FINRA arbitrations to proceed would require the settling defendants to expend monies needed for the proposed settlement on defending the arbitrations. The case made the news because the Northern District of Texas issued a TRO to preserve the status quo while the court considered whether to approve the proposed settlement. The court also noted that it would consider the appropriateness of using the All Writs Act to enjoin arbitration proceedings when it decided the parties’ Motion for Preliminary Approval. (Read more here.) Last week, Judge Royal Furgeson denied the parties’ proposed settlement and lifted the TRO: Because the terms of the proposed settlement would involve the enjoining of a number of FINRA arbitrations brought by individual investors against Securities America, the Court set a hearing and briefing schedule for March 18, 2011, the earliest possible date for such a hearing to occur. The Court considered the oral arguments and briefs of all of the parties. In accordance with the Court’s Order from the bench at the conclusion of the hearing, it is the opinion of the Court that the Representative Plaintiff’s Motion should be DENIED. As part of this decision, it is ORDERED the Temporary Restraining Order issued on February 18, 2011 (Billitteri Docket No. 210, Toomey Docket No. 75, McCoy Docket No. 132) and extended on March 7, 2011 (Billitteri Docket No. 290, Toomey Docket No. 89, McCoy Docket No. 179), which temporarily stayed several FINRA arbitrations against Defendant Securities America while the instant Motion was pending, is hereby LIFTED. (N.D. Tex., March 21, 2011, 2011 WL 1033647) The short order and opinion did not go into further detail. Judge Furgeson stated, however, the “Court shall issue a further order in the near future further explaining the Court’s reasoning in making its decision.” Disputing will definitely be keeping an eye out for the Northern District’s forthcoming opinion. You may also read more about the case here. Technorati Tags: arbitration, FINRA, News, securities arbitration

The Dallas Court of Appeals has held that certain language contained in an employee handbook rendered the contained and referenced arbitration and mediation agreements illusory and unenforceable. In Weekley Homes, L.P. v. Rao, No. 05-10-00570 (Tex. App. – Dallas, March 22, 2011), Len Rao, former Division President of David Weekley Homes, filed a lawsuit against the company which alleged breach of contract, conversion, breach of fiduciary duty, libel, slander and defamation. Weekley Homes responded by filing a plea in abatement and motion to compel arbitration, arguing that Rao agreed to arbitrate any and all claims against the company when he acknowledged and accepted a dispute resolution policy contained and incorporated by reference in the company’s employment handbook. According to Rao, the arbitration agreement contained in the handbook was not binding because language in the handbook rendered any promise to arbitrate made by Weekley Homes illusory. After the trial court denied Weekley Homes’ plea in abatement, Weekley Homes appealed. The Dallas Court of Appeals granted an emergency stay pending the appeal. The court also granted Rao’s motion to stay the arbitration proceeding filed by Weekley Homes during the pendency of the appeal. According to the Dallas Court, three pertinent documents were entered into the court record: (1) a printed copy of Weekley Homes’ online employment handbook; (2) a four-page document titled “Dispute Resolution Policy;” and (3) an email dated March 1, 2007 sent from Weekley Homes personnel to Rao which confirmed Rao received a copy of the online handbook. In a section titled “The Purpose of this Handbook,” the employment handbook contained the following language: Polices are not to be interpreted as a promise by the Company that any particular situation will be handled in the express manner set forth in the text. In a later section, under the larger heading “DWH Policies Section” was a section titled “Dispute Resolution.” Language in this section indicated “any claim, controversy or other dispute” related to employment at Weekley Homes “shall be resolved by arbitration, in lieu of jury trial or any other legal proceeding” under the Federal Arbitration Act. This section also contained a link to the four-page “Dispute Resolution Policy,” which likewise contained language which stated any claim or dispute arising from employment or termination of employment must be resolved by arbitration. Weekley Homes argued the Dispute Resolution Policy was enforceable against Rao because he agreed to its terms and acknowledged receipt of the handbook. Although Rao admitted to receiving the handbook, he argued the promise to arbitrate was made illusory by the terms of the handbook. Weekley Homes maintained the language in the handbook did not apply to the Dispute Resolution Policy because it was a “separate, fully valid and enforceable” document that contained no modification language. The Dallas Court of Appeals held the modification language contained in Weekley Homes’ employment handbook applied to the separate arbitration policy because the, very structure and language of the Handbook connects the modification language directly with the Dispute Resolution Policy. First, we note the modification language is set out in a section of the Handbook entitled “PURPOSE OF THIS HANDBOOK.” That section makes broad reference to “policies.” Second, we note the Handbook’s table of contents includes a category of provisions titled “DWH POLICIES SECTION.” The listed provisions under that title include “DISPUTE RESOLUTION.” In the body of the Handbook, the section titled “DISPUTE RESOLUTION” describes “The David Weekley Homes Dispute Resolution Policy [as being] designed to maintain a healthy work environment, encourage communication between Team Members, and resolve problems in an efficient manner.” Then, below the title “DISPUTE RESOLUTION” is another section titled “MEDIATION AND ARBITRATION.” Following that titled paragraph, are three paragraphs of text. . . . Following that statement is a link to the four-page Dispute Resolution Policy. One is invited to “Click HERE ” to review the “complete,” four-page Dispute Resolution Policy. Contrary to the Weekley Parties’ position, the Dispute Resolution Policy is incorporated by reference into the Handbook and an integral part of it. The court also disagreed with Weekley Homes’ contention that the modification language did not make the promise illusory because it stated employees would receive notification of any changes. According to the court, the modification language failed to state any changes to the agreement would be made prospectively and the, plain language of the modification provision gives Weekley Homes the unilateral power, at any time, to elect not to enforce any policy or provision in the Handbook. By virtue of the modification language, Weekley Homes has “expressly denied that [it] was bound by the policies set out in that document.” (citation omitted). After holding the arbitration obligation was illusory, the Dallas Court of Appeals affirmed the trial court’s order denying Weekley Homes’ plea in abatement and motion to compel arbitration and lifted its stay on the trial court proceedings. Technorati Tags: arbitration, ADR, law, Mediation

Today is the final day of the American College of Healthcare Executives’ (ACHE) 2011 Congress on Healthcare Leadership. This year, the Chicago, Illinois event offered attendees “more than 100 educational seminars, special programs, networking events and professional development possibilities.” This morning, Disputing’s own Karl Bayer and Holly Hayes will present “Introducing Conflict Resolution Strategies in Health Care” at 9 am in the State Ballroom of the Palmer House Hilton. You may follow ACHE Congress events on Twitter @ACHECongress. You can also follow Karl on Twitter @karlbayer. More information on the 2011 ACHE Congress is available here. Disputing previously blogged about the event here. Technorati Tags: Healthcare, Mediation

The Southern District of Texas has denied an ex parte emergency application for a temporary restraining order which sought to enjoin a pending foreign arbitration proceeding because the party seeking the order failed to meet its burden under Rule 65 of the Federal Rules of Civil Procedure. In S&T Oil Equipment and Machinery, LTD v. Juridica Investments Ltd., No. H-11-0542 (S.D. Tex., March 10, 2011), S&T Oil entered into an investment contract with Juridica Investments Limited (“JIL”) under which JIL would provide S&T Oil with partial funding for the costs and fees arising from an arbitration proceeding between S&T Oil and the Romanian government. The arbitration was held before the International Centre for the Settlement of Investment Disputes in Washington, D.C. between 2007 and 2009, during which S&T Oil was represented by King & Spalding. The investment agreement between JIL and S&T Oil required all disputes between the parties be arbitrated and further mandated that any arbitration proceedings must be held in Guernesy, Channel Islands, where JIL was incorporated. Additionally, the agreement stated all arbitrations were to be conducted through the London Court of International Arbitration (“LCIA”). JIL initiated arbitration proceedings against S&T Oil on December 22, 2010. S&T Oil sought to enjoin the arbitration by filing an ex parte emergency application for a temporary restraining order in the Southern District of Texas. Before the court, S&T Oil alleged the arbitration clause in the parties’ investment agreement was unenforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards as implemented through 9 U.S.C. §§ 201-208, procured by fraud and substantially and procedurally unconscionable under Texas law. According to S&T Oil, the arbitration agreement was substantively unconscionable for three reasons: It would be significantly more expensive to arbitrate before the LCIA in Guernsey; JIL had the ability to influence the selection of arbitrators through a shared board member with the LCIA, which presented an undisclosed conflict of interest and fraudulent inducement in the formation of the agreement; and Holding the arbitration in Guernsey would deprive S&T Oil of its day in court. S&T Oil also argued procedural unconscionability on the basis that its counsel, King & Spalding, acted in its own interest when it advised S&T Oil to enter into the funding investment agreement with JIL. According to the court, because S&T Oil merely presented LCIA’s schedule of arbitration costs and a comparison of air travel costs, but did not provide an estimate of the total costs of arbitration, the company failed to demonstrate the expense of arbitration before the LCIA in Guernsey would be materially greater than federal litigation in Houston. Additionally, no estimate regarding the expense of domestic litigation was offered. The court also stated travel costs were not necessarily implicated in the matter because the arbitration provision at issue provided for alternatives to in-person hearings. Next, S&T Oil asserted that a non-disclosed conflict of interest existed since one of JIL’s non-executive Board of Directors was also a member of the Board of Directors for LCIA. LCIA’s board members are responsible for appointing the LCIA Court which then appoints arbitrators to specific proceedings. JIL responded by presenting an affidavit which stated the board member in question was never a board member of LCIA and had no influence on the selection and appointment of arbitrators. According to the Southern District, S&T Oil failed to meet the evidentiary burden necessary to refute the affidavit. The court then refused to find substantive unconscionability despite a requirement that the arbitration be conducted in Guernsey because both parties were sophisticated commercial entities and the arbitration provision was prominent within the larger investment agreement. Finally, the court dismissed S&T Oil’s procedural unconscionability argument because the company also retained independent counsel unaffiliated with King & Spalding to review the agreement with JIL. S&T Oil’s independent legal counsel reviewed the agreement and informed S&T Oil that the arbitration clause was likely enforceable. Because S&T Oil failed to establish any of the four elements necessary pursuant to Rule 65, the Southern District of Texas denied the company’s motion for an emergency temporary restraining order. Technorati Tags: arbitration, ADR, law