The Dallas Court of Appeals has held the mandatory notice requirements set forth in Section 74.451 of the Texas Civil Practice and Remedies Code rendered an arbitration provision unenforceable where the McCarran-Ferguson Act (MFA), 15 U.S.C. § 1012(b), preempted the Federal Arbitration Act (FAA). In In re Sthran, No. 05-10-01176-CV (October 29, 2010), Etta Sthran (relator) sued Forest Lane Healthcare Center and THI of Texas at Forest Lane, LLC (Forest Lane), a nursing home, for “negligent acts and omissions” which caused damages to her husband during his lifetime and “were a proximate cause of his death.” Prior to the decedent’s admittance to Forest Lane, however, relator signed a contract which required that any future disputes between the parties be resolved through binding arbitration. Forest Lane filed a motion to compel arbitration citing the contract provision signed by relator. After the trial court ordered relator’s claims for her individual damages which were not derivative of her husband’s claims to arbitration, relator sought a writ of mandamus. Relator argued that the arbitration provision in the contract was unenforceable because it failed to satisfy mandatory notice requirements set forth in Section 74.451 of the Texas Civil Practice and Remedies Code. Section 74.451 states, in relevant part: (a) No physician, professional association of physicians, or other health care provider shall request or require a patient or prospective patient to execute an agreement to arbitrate a health care liability claim unless the form of agreement delivered to the patient contains a written notice in 10-point boldface type clearly and conspicuously stating: UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN ATTORNEY. Forest Lane did not allege that the contract complied with Section 74.451 nor that relator’s claims were not “health care liability” claims. Instead, Forest Lane responded by stating the FAA preempted Section 74.451. According to the court, the MFA: will prevent a federal statute from preempting a state statute if (1) the federal statute at issue does not specifically relate to the “business of insurance,” (2) the state law was enacted for “the purpose of regulating the business of insurance,” and (3) the federal statute operates to “invalidate, impair, or supersede” the state law. After distinguishing the case from Doctor’s Associates, Inc.v. Casarotto, 517 U.S. 681 (1996), the court concluded “…without deciding that the FAA could preempt the notice requirement of section 74.451… the MFA reverse preempts the FAA with regard to such notice requirement in this case.” The Dallas court also determined the relator had no adequate remedy by appeal because: it is not clear that any fees and expenses incurred as a result of arbitration will be recoverable. Further, because this case is one of those “rare cases” when legislative mandates might be construed to conflict, mandamus will “preserve important substantive and procedural rights from impairment and loss, [and] allow the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments.” Finally, the court dismissed Forest Lane’s argument that relator’s petition for mandamus was untimely since Forest Lane failed to demonstrate a detrimental change in position. Because the mandatory notice requirements set forth in Section 74.451 rendered the arbitration provision unenforceable and relator had no adequate remedy by appeal, the Dallas Court of Appeals ordered the trial court to vacate its order compelling arbitration. Disputing has discussed reverse preemption in the past here, here and here. Technorati Tags: arbitration, ADR, law

An interesting article about alternative dispute resolution (ADR) in a labor and employment law context was recently published in the ABA Journal of Labor and Employment Law. In an article entitled “ADR in Labor and Employment Law During the Past Quarter Century,”25 ABA Journal of Labor & Employment Law 411 (Spring 2010), University of Michigan Professor Emeritus of Law Theodore J. St. Antoine discusses important decisions and developments since the U.S. Supreme Court’s 1991 decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The author also analyzes two bills being considered by the 111th Congress: the Employee Free Choice Act (EFCA) (H.R. 1409, 111th Cong. (2009), and the Arbitration Fairness Act (AFA) (H.R. 1020, 111th Cong. (2009). In Gilmer, the Court approved contractual “mandatory arbitration” of statutory employment claims, a decision St. Antoine says is “the most significant and most debated ADR decision in labor and employment law during the past quarter century.” St. Antoine argues the AFA’s proposal to prohibit all pre-dispute employment arbitration agreements “seems short-sighted and too heavy-heavy handed” given the evidence that “realistically, pre-dispute agreement to arbitrate, when neither party knows what the future holds, may be the most viable option for both sides.” On the other hand, St. Antoine states the EFCA may “have the most significant impact in history on the use of interest arbitration in the private sector.” The proposed law would amend the National Labor Relations Act by adding a new section “which would provide for interest arbitration in first-contract negotiations if the parties could not reach agreement within 120 days, including a thirty-day mediation period.” The resulting contract would be binding for two years. Currently, only about 39% of unions winning National Labor Relations Board elections are able to enter collective contracts in the first year. Although focused on the narrow area of ADR in the labor and employment context, the article offers an overview of many ADR issues and utilizes a wealth of primary and secondary sources to explain and support the author’s arguments. St. Antoine also discusses a variety of empirical studies on the use of ADR, as well as other developments such as the prevalence of class action waivers. The article is available online through the ABA Section of Labor and Employment Law (ABA Password and Login required). Technorati Tags: arbitration, ADR, law

A special master was recently appointed by the Northern District of Texas in NetSphere v. Baron (In re Ondova Ltd. Co.), No. 3-09CV988-RF. The underlying Chapter 11 bankruptcy case involves numerous parties, offshore entities and several related lawsuits. After the bankruptcy court held four status conferences related to the parties’ global settlement agreement (GSA), approved by the bankruptcy court on July 28, 2010, the bankruptcy judge made a “Report and Recommendation” to Senior District Court Judge Royal Furgeson which detailed the status of the GSA and recommended the appointment of a special master to mediate claims arising from the conduct of one of the parties. In large part, the bankruptcy court’s concern regarding the GSA arose from what the court termed Baron’s “Cavalcade of Attorneys.” Throughout the bankruptcy proceedings, Baron “has continued to hire and fire lawyers” and has instructed these lawyers to file pleadings against matters resolved by the agreement. The court also expressed concern that such constant turn-over in the “dozens of sets of lawyers” hired by Baron has generated “significant fees . . . to a level that is more than a little disturbing.” The court noted that this behavior “smacks of the possibility of violating Rule 11” or, “more troubling,” the possibility that “Baron may be engaging in the crime of theft of services.” Although the bankruptcy court’s report indicates that there was “substantial consummation” of the settlement agreement by most parties, the court nevertheless “has had lingering concerns at each of the status conferences regarding Jeffrey Baron’s commitment to completing his obligations under . . . and possibly taking actions to frustrate . . . [the settlement agreement].” The court also expressed concern that Baron’s practice of continuously switching legal counsel may pose a risk to the bankruptcy estate and expose other parties to the GSA to unwanted administrative expense. The bankruptcy court informed Baron that he would no longer be allowed to hire additional attorneys. He was given the option to retain his current legal counsel throughout the remainder of the bankruptcy litigation or proceed pro se. Further, the bankruptcy court recommended the Northern District of Texas appoint a special master to conduct a global mediation between Baron and “various attorneys who may make a claim” for reimbursement against the amount of $330,000 set aside by the bankruptcy court as a “security deposit” against the financial risks posed against the bankruptcy estate by the fees incurred by Baron’s attorneys. After consideration of the bankruptcy court’s report, the Northern District of Texas adopted the bankruptcy court’s recommendation in its entirety and appointed a special master to the case. Although the case is still pending, Judge Fergeson’s Order may be viewed here. The bankruptcy court’s Report and Recommendation is available at 2010 Bankr. LEXIS 3575 or 2010 WL 4226285 (N.D. Texas). Tags: special masters, mediation

A forthcoming article entitled “The Litigation-Arbitration Dichotomy Meets the Class Action” by Vanderbilt Law Professor and Director of the Cecil D. Branstetter Litigation & Dispute Resolution Program Richard A. Nagareda makes some interesting and compelling arguments related to AT&T Mobility, LLC v. Concepcion, 09-893, a case set for argument before the U.S. Supreme Court on November 9th. The article examines two cases from the Court’s October 2009 Term, Shady Grove Orthopedic Associates v. Allstate Insurance Co. and Stolt-Nielsen S.A. v. AnimalFeeds International Corp., and argues that “for all their salient differences, the Court’s accounts of class treatment under the Rules Enabling Act and the FAA evidence a deep, underlying convergence between litigation and arbitration doctrine.” Despite that Shady Grove and Stolt-Nielsen illustrate “divergent accounts of class treatment in litigation and arbitration,” their juxtaposition “serves to highlight deep structural similarities between the Court’s treatment of federal and state authority in litigation and the Court’s now-extensive jurisprudence on arbitration.” From this juxtaposition, the author concludes that the “critical precedent that guides the disposition of Concepcion is not Stolt-Nielsen but, rather, Shady Grove.” Here is the abstract: Courts and commentators often conceive of litigation and arbitration as dichotomous regimes for civil dispute resolution. Two new decisions from the Supreme Court provide the occasion to rethink this conventional view. In Shady Grove v. Allstate Insurance, the Court acknowledges that a class action often alters dramatically the incidence of claiming but, for purposes of the Rules Enabling Act, the Court deems this effect to be merely “incidental.” In Stolt-Nielsen v. AnimalFeeds, however, the Court deems the use of class-wide arbitration to be such a “fundamental” change as to lie outside the authority of arbitrators in the face of contractual silence as to class treatment. This Article – for the annual Federal Courts, Practice & Procedure issue of the Notre Dame Law Review – urges a more synthetic understanding of litigation and arbitration. For all their differences, the Court’s accounts of class treatment under the Rules Enabling Act and the Federal Arbitration Act (FAA) evidence a deep, but undertheorized, convergence. Shady Grove is the latest of the Court’s efforts to map the proper relationship between federal and state law under the Erie and Hanna doctrines. This Article explains how the Court’s arbitration jurisprudence has come to replicate key structural features of the Erie and Hanna doctrines in litigation. The Article then underscores the transnational dimensions of arbitration in our modern world of globalized commerce – one that frames in a new light the holding in Stolt-Nielsen within the context of the Court’s thinking about extraterritoriality and transnational recognition of judgments in litigation. The Article then turns to a case now before the Court – AT&T Mobility v. Concepcion – concerning an arbitration clause that would waive the opportunity for consumers to participate in either a class action or a class arbitration. The Article explains how the approach of the lower courts in Concepcion presents the Supreme Court with the counterpart, in the arbitration setting, to the mistaken application of state law rightly overturned in Shady Grove under the Hanna doctrine. Such a view nonetheless would afford ample latitude for contextual, Erie-like analysis of other arbitration clauses with class waivers tantamount to exculpatory clauses. The Article concludes by situating its synthetic conception of litigation and arbitration within ongoing debate over the proposed Arbitration Fairness Act. The article, slated to be published in Notre Dame Law Review’s Federal Courts, Practice and Procedure issue, 86 NOTRE DAME L. REV. (forthcoming 2011), is currently available for download here on Social Science Research Network. Disputing has been keeping a watchful eye on the forthcoming AT&T Mobility case. We blogged about the case several time this year including: here, here, here and here. Technorati Tags: arbitration, ADR, law