Next month, the Financial Industry Regulatory Authority (FINRA) will file a rule proposal to expand a two-year-old Public Arbitrator Pilot Program (pilot program) which would allow all investors filing arbitration claims the option of having an all-public arbitration panel. FINRA’s rule proposal will be filed for approval with the Securities and Exchange Commission. If approved, the rule would allow investors to choose an arbitration panel with two public arbitrators and one non-public arbitrator or an all-public panel. Currently, the pilot program allows investors filing an arbitration claim against 14 firms that volunteered for the program the option of choosing an all-public panel. The current pilot program is also limited to cases that do not involve individual brokers. The proposed rule would expand the pilot program to include all investor disputes against any firm and any individual broker, although the proposed rule would not apply to disputes involving only industry parties. More than 60 percent (approximately 560 cases) of eligible investors chose to opt in since the pilot program began in October 2008. Of those investors, approximately 50 percent chose to include one non-public arbitrator on their panel. The pilot program was originally slated to conclude in October 2010, however, participating firms recently agreed to extend the pilot program for one-year in order to allow time for the rule making process to be completed. You can read an interesting article about the rule proposal here. The FINRA news release may be read here.? Disputing blogged on FINRA’s Public Arbitrator Pilot Program previously here. Technorati Tags: law, ADR, arbitration, FINRA, securities arbitration,
Continue reading...by Don Philbin Earlier this month, I was pleased to be the invited luncheon speaker for the Advanced Texas Administrative Law Seminar in Austin. Of course, I knew that my job was to discuss advanced decision analysis and the analytical and graphical illustration tools that I’ve been working on to help communicate such case analyses. What I didn’t know was that I would be followed by an excellent presentation that would drill into appellate statistics and disposition times in the administrative law realm. Steven Baron, in a presentation titled “Winning: Some Reflections and Empirical Observations about Challenging Agency Action,” suggested that parties weighing an appellate challenge to an adverse administrative agency decision consider three questions: What are my chances of success? How long will it take to get a decision? How much will it cost? To guide people wrestling with those questions, Baron surveyed approximately 230 Texas appellate decisions over the three-year period from August 2007 through July 2010. His first cut revealed that the courts of appeals reversed the agency on one or more of the principle issues in 81 of the 230 cases, or 34.5% of the total. Baron then teased out the specific issues on which parties were successful. By a two to one margin, misinterpretation of the relevant statute or agency rule came in first. Those claims appeared in one third of the challenges and they were successful 29% of the time. Closely related claims that the agency exceeded its authority (acted ultra vires) occurred in 13% of cases and succeeded 26.6% of the time. Baron noted that combined, statutory/rule misinterpretation and ultra vires claims appeared 41% of the time and had a success rate of 24%. He continued that analysis for other claims that were raised less often. Baron then factored the numbers to show an overall likelihood of reversal by claim type. While statutory/rule misconstruction won by more than 2 to 1, the overall likelihood of reversal was still just under 10%. With those long odds of appellate success, Baron turned to the question of time to obtain that result. Baron reviewed a number of statistics on appellate dispositions in administrative appeals. The average disposition time, not including any subsequent remand, was 3.45 years. He also noted that these disposition times varied by court. The Third Court of Appeals in Austin hears half (48%) of administrative appeals and takes 25% longer on average than other appellate courts to dispose of such cases. Baron recalled that the Texas Supreme Court observed in O’Neal v. Ector County Independent School District, 251 S.W.3d 50 (2008), that appeals and remands may extend procedures for years in administrative law cases. Finally, Baron turned to the question of costs. He knew that costs are a function of the usual factors in lawsuits, with the added complication that administrative law cases are essentially tried twice since the standard of review in the district court is de novo. Baron reached the fairly obvious conclusion that even a sub-10% chance of reversal may make a lot of sense in cases where the stakes in that particular case or in forward-looking matters that would be impacted by the precedent would vastly exceed the cost of the challenge, even when factored by the less than 10% chance of success two or three years down the road. Baron did a fine job of pulling the quantitative statistics together in the administrative law context. This is a continuing area of interest to me. It won’t be long before my own program automating many of these and other analytics is available. Technorati Tags: law, ADR, arbitration Don Philbin is an AV-rated attorney-mediator, negotiation consultant and trainer and arbitrator. He has resolved disputes and crafted deals for more than 20 years as a commercial litigator, general counsel and president of communications and technology-related companies. Don has mediated hundreds of matters in a wide variety of substantive areas and serves as an arbitrator on several panels, including CPR’s Panels of Distinguished Neutrals. He is an adjunct professor at the Straus Institute for Dispute Resolution at Pepperdine Law School, Chair of the ABA Dispute Resolution Section’s Negotiation Committee and a member of the ADR Section Council of the State Bar of Texas. Don is a Fellow of the American Academy of Civil Trial Mediators and is listed in The Best Lawyers in America (Dispute Resolution), Texas Super Lawyers (2010), The Best Lawyers in San Antonio and the Bar Register of Preeminent Lawyers.
Continue reading...A recent article in the Yale Journal of Law and Feminism entitled “Moving Out of the 1990s: An Argument for Updating Protocol on Divorce Mediation in Domestic Abuse Cases,” 22 Yale Journal of Law and Feminism 97 (2010), makes an interesting argument that many states need to reexamine policies banning or restricting mediation in divorce proceedings involving domestic violence. According to Mary Adkins, co-student director of the Yale Domestic Violence Clinic, as the number of divorce cases rapidly increased during the late 1980’s and early 1990’s (70% between 1984 and 1996), courts began to more widely experiment with a number of alternative dispute resolution (ADR) models in divorce proceedings. A large number of judges, scholars and domestic violence advocates expressed concern about the appropriateness of using mediation in cases where domestic violence occurred, however. The National Council of Juvenile Family Court Judges was influenced by these critiques in drafting Sections 407 and 408 of the 1994 Model Code on Domestic and Family Violence which, in turn, influenced many states to limit or completely ban divorce mediation in circumstances of domestic violence. The author points to the American Bar Association Commission on Domestic Violence’s 2008 publication “Mediation in Family Law Matters Where DV is Present” to illustrate the extent to which mediation has been restricted nationwide. The author asserts that critics of the use of ADR in such cases were focused on the so-called facilitative model of mediation, which stresses features such as brainstorming and validating both parties’ points of view, rather than the evaluative model, which focuses more on efficiency and legally-influenced outcomes such as settlement agreements. The author states this distinction is important because the evaluative model is the dominant model actually used in divorce mediations and the model can easily be tailored to offer enhanced protections for victims of domestic violence. The author argues, as a matter of public policy, the premises underlying the position taken by the National Council of Juvenile Family Court Judges and many states should be reevaluated so the victims of domestic violence are not unfairly prohibited from taking advantage of mediation settlements which may be preferable to litigation in many circumstances. Section 6.602(d) of the Texas Family Code Annotated currently allows a victim of domestic violence to object to mediation proceedings in a suit for dissolution of marriage, but does not forbid mediation outright. Additionally, this section of the Family Code also incorporates certain protections recommended by the article’s author, such as allowing for remote mediation. Texas Family Code Annotated Section 153.0071 extends similar protections to mediation proceedings related to custody disputes, but also allows the court to decline to enter a judgment pursuant to a mediation settlement if a party to the agreement was a victim of domestic violence where the terms the of the settlement agreement are not in the best interests of the child. Disputing recently discussed a case decided earlier this month by the Houston First Court of Appeals which allowed for cooperative law agreements in divorce proceedings here. Technorati Tags: ADR, law, mediation
Continue reading...The 5th Circuit Court of Appeals has held that a court may not compel arbitration under the theory of direct benefits estoppel where there was no evidence a party had actual knowledge a contract containing an arbitration clause existed and no attempt was made by the party to enforce the specific provision which contained the arbitration clause. In Noble Drilling Services, Inc. v. Certex USA, Inc., No. 10-20083 (5th Cir., September 15, 2010), Noble Drilling Services (Noble) entered an agreement to purchase wire mooring rope from Bridon International, Ltd. and Bridon-American Corporation (Bridon) through Bridon’s distributor Certex USA, Inc. (Certex). The distribution agreement between Certex and Bridon contained an arbitration clause that “expressly disclaims any intention to benefit any third party.” Based upon various representations made by both Bridon and Certex regarding the strength of Bridon’s ropes, Noble entered into a sales contract with Certex to purchase wire rope manufactured by Bridon. To fulfill the sales contract, Certex entered into purchase order agreements with Bridon. These agreements specified the type of wire required by Noble and directed that Bridon ship the wire rope directly to Noble. The purchase order agreements also incorporated Bridon’s “terms and conditions,” including a provision that stated where “any dispute or difference arises out of or in connection with the contract” upon written notice of either party to the contract it “shall be referred to the arbitration of a person . . .” The court noted that no evidence was presented to establish Noble was presented a copy of the purchase order agreements or distribution agreement existing between Certex and Bridon, or viewed Bridon’s terms and conditions containing the arbitration clause. Noble’s agreement with Certex did not contain an arbitration clause and included a clause which stated the sales contract between Noble and Certex, together with Noble’s terms and conditions, constituted the complete agreement between the two parties. After the wire ropes failed during Hurricane Ike and resulted in damage to Noble’s rigs in the Gulf of Mexico, Noble brought suit against Certex and Bridon. Noble’s suit alleged breach of the sales contract as to the quality of the ropes, negligence in the design of the wire ropes, breach of an express warranty that the ropes conformed to Noble’s specifications, breach of an implied warranty of merchantability, negligence and gross negligence in making representations about the ropes, fraud and fraudulent inducement, liability under Louisiana’s law of redhibtion and violations of the Louisiana Products Liability Law. Certex and Bridon moved to compel Noble to arbitrate under the terms and conditions contained in the distribution and purchase agreements. Despite that Noble was not a signatory to any agreement between Certex and Bridon, Certex and Bridon argued that Noble could nevertheless be compelled to arbitrate under the theory of direct benefits estoppel. The district court found that Noble was bound to arbitrate because Noble’s claims were “premised on Bridon’s failure to perform” according to the purchase order agreements with Certex and that Noble was the direct beneficiary of those orders. After the district court dismissed the case, Noble appealed. Relying on Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, (5th Cir. 2006), the Fifth Circuit noted the theory of direct benefits estoppel requires that a non-signatory party “embrace” a contract during the life of the contract only to repudiate an arbitration clause contained in the contract once litigation has begun. This “embrace” can occur in one of two ways: by “knowingly seeking ‘direct benefits’ from that contract,” or, “by seeking to enforce the terms of that contract or asserting claims that must be determined by reference to that contract.” The Fifth Circuit further noted that it would review the facts under both methods because it appeared that both were invoked in Hellenic Inv. Fund. To satisfy the knowledge requirement of knowingly seeking direct benefits, a non-signatory party must “have had actual knowledge of the contract containing the arbitration clause.” Because Noble alleged it “was never apprised of the existence, much less any specific terms” of the purchase order agreements between Certex and Birdon until after litigation began and Certex and Bridon offered no such evidence, no evidence existed to support the “knowingly seeking” method of embracing the contract under the theory of direct benefits estoppel. The Fifth Circuit then noted that since Noble was not seeking to enforce the specific terms of the purchase order contract containing the arbitration clause, the second method of embracing the contract necessary for direct benefits estoppel could only apply if “Noble’s claims can be determined solely by reference to the Purchase Order Agreements.” Noble expressly disclaimed any provisions in the purchase order agreements, instead relying on the pre-purchase representations made by Certex and Bridon, as well as the basic legal duties imposed by law on manufacturers and distributors. Because the Fifth Circuit found no evidence to establish Noble embraced the contract under the theory of direct benefits estoppel, the case was reversed and remanded in order to be tried on the merits of Noble’s claims. Disputing has discussed direct benefits estoppel frequently in the past: In 2009 Developments in Arbitration: Binding Non-Signatories; In a law review article: “Disappearing Juries and Jury Verdicts,” 39 Tex. Tech L. Rev. 289, written by the Honorable Sam Sparks, U.S. District Judge for the Western District of Texas and DLA Piper attorney George B. Butts; In a 2007 blog posting entitled Concerted-Misconduct Equitable Estoppel; In Non-Signatories and Arbitration of Personal Injury Claims; and in Karl Bayer’s Continuing Legal Education paper entitled “Arbitration: What’s a Trial Lawyer to Do?“ Technorati Tags: ADR, law, arbitration
Continue reading...Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.
Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.