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

by Holly Hayes In his book, Beyond Neutrality, Bernard Mayer says, “Conflict resolution professionals are not significantly involved in the major conflicts of our times. Many conflict resolution practitioners play useful but essentially marginal roles in large-scale public conflicts… we are not involved at the center of the conflict or decision-making processes.” This week, we posted about “clinical integration” or the creation of Accountable Care Organizations (ACOs). Is this an area where conflict resolution practitioners can play a “useful and essential role at the center of the decision-making process”? American Medical News has this to say about the development of ACOs: The accountable care organization hit the mainstream when, in its June 2009 report, the Medicare Payment Advisory Commission discussed the concept as a way to reduce costs and improve care for Medicare beneficiaries, going so far as to discuss whether physician membership in ACOs should be mandatory. (The AMA countered that such projects be voluntary for physicians.) The health system reform law passed on March 23 directed CMS to begin demonstration projects to test ACO projects nationwide, the most prominent being the Medicare Shared Savings Program, scheduled to begin by Jan. 1, 2012. That allows physicians to sign up, voluntarily, for ACOs, which must consist of at least 5,000 Medicare patients, and must run for at least three years. …analysts say a sure thing is that the fee-for-service system, as constructed, is under attack, and that allying with fellow physicians and others in ACO might be a practical strategy to preserve, or even increase, income. And that’s why there is so much scrambling right now among doctors, and hospitals, to get involved with ACOs. Much of the nitty-gritty has yet to be worked out, but experts say physicians should start thinking about how their practices may need to change if they want to be ready for the final rules, and be able to take advantage of possible bonuses. “This doesn’t necessarily mean that physicians have to be employed, but they are going to have to work together,” Harold D. Miller, executive director of the Center for Healthcare Quality and Payment Reform in Pittsburgh, said July 12 at an American Medical Association seminar in Chicago. “We should not think that the only solution is large, integrated delivery systems. … You want to have multiple models and have some degree of competition.” Those who work in this area say the first step is for physicians to think about the kinds of issues in their practice that incur the most significant health care costs and the connections that have the most potential to reduce them. “We don’t really know how it’s going to work,” said AAFP President Lori Heim, MD. “Right now, it’s a theory.” The words: change, competition, attack, allying, scrambling, work together, multiple models and theory, suggest there may be a role at the table for conflict resolution practitioners as the government, hospitals, health systems, physician practices and health care associations seek to implement the Accountable Care Organization model which, at its core, holds care providers “accountable” for utilizing resources to decrease costs and increase quality. We welcome your thoughts on this topic. _________________________________________________________________________ Holly Hayes is a mediator at Karl Bayer, Dispute Resolution Expert where she focuses on mediation of health care disputes. Holly holds a B.A. from Southern Methodist University and a Masters in Health Administration from Duke University. She can be reached at holly@karlbayer.com. Technorati Tags: Mediation

The Twelfth District Court of Appeals of Texas has held that evidence of a routine employment practice was insufficient to prove an arbitration agreement existed. In In re Astro Air, L.P., No. 12-10-00108-CV (Tex. App. – Tyler September 15, 2010), Sharron Hall was hired by Astro Air, L.P. in December 2005 and remained an employee of Astro until she suffered an on the job injury in July 2007. Hall sued Astro, alleging that her injury was result of Astro’s negligence and Astro filed a motion to abate the proceeding and compel arbitration. Astro alleged that Hall’s claims were covered by an arbitration agreement which existed between Hall and Astro but the company was unable to produce a signed arbitration agreement. Astro presented an affidavit and deposition testimony from Astro’s human resources manager at the time Hall was hired, Lora Griffith Western. Western testified that Astro was a nonsubscriber to workers’ compensation at the time Hall was hired and that the “routine practice was to explain to any new employee that it was a nonsubscriber and that it had an ERISA complaint injury benefit plan that included an arbitration agreement.” Astro further required new employees to sign several documents, including an arbitration agreement, before the employee was permitted to begin work. These signed arbitration agreements, along with other documents, were routinely kept in each employee’s personnel file. In August 2007, Astro was acquired by Luvata Grenada, L.L.C. and all personnel files were sent to Luvata. Astro was unable to locate the personnel file belonging to Hall when she brought her claim. Despite this fact, Astro argued that Western’s testimony and affidavit as to routine employment practice was sufficient to establish that an arbitration agreement existed between Hall and Astro and to support Astro’s motion to compel arbitration. In response, Hall submitted an affidavit which stated that she did not recall being informed of an arbitration agreement, agreeing to be bound by an arbitration agreement as a condition of employment or signing any such agreement. She did, however, recall being informed that Astro was a nonsubscriber to workers’ compensation. After hearing argument and reviewing the affidavits, a trial court denied Astro’s motion to compel arbitration and Astro filed a petition for writ of mandamus. As an initial matter, the Twelfth District noted that because the arbitration agreement Astro was seeking to enforce was governed by the Federal Arbitration Act (FAA), a mandamus proceeding was appropriate because a denial of a motion to compel arbitration governed by the FAA leaves a party with no adequate remedy on appeal. The court then noted that because arbitration agreements “are valid, irrevocable, and enforceable to the same extent as any other contract” the court must “first determine whether the arbitration agreement in this case satisfies Texas law governing contract formation.” Only after an arbitration agreement found to exist does the strong presumption in favor of arbitration apply. “[T]he initial determination of whether an enforceable agreement exists is determined through the neutral application of contract law.” Under the Texas Rules of Evidence Section 406, evidence of an organization’s routine practice is relevant to prove the organization acted in accordance with that routine on a specific occasion. Establishing routine practice does not conclusively establish the fact, however, and the evidentiary burden belonged to Astro. In determining Astro’s evidentiary burden, the court noted that under established spoliation doctrine, the burden of prejudicial effects fall upon the party responsible for preserving the evidence. Despite that Astro presented strong evidence of routine practice, Western testified that she could not be certain that Hall had in fact signed an arbitration agreement and Hall likewise swore that she could not recall signing an agreement. Therefore, it was not possible for the court to “say that the trial court could reasonably have reached but one decision about the existence of an agreement to arbitrate.” The Twelfth District denied Astro’s writ of mandamus and held that the trial court did not abuse its discretion in when it denied Astro’s motion to compel arbitration. Technorati Tags: ADR, law, arbitration

The State of Connecticut has released statistics for its Foreclosure Mediation Program. The program allows borrower-occupants of a one, two, three or four family residential property located within the state to request mediation when facing judicial foreclosure. When a lender commences a foreclosure action, it must serve a notice to the homeowner along with a Foreclosure Mediation Certificate and an appearance request form. If a homeowner qualifies under the program and files an Appearance, the homeowner and lender then meet with a mediator employed by the State’s Judicial Branch in an effort to reach an agreement. Mediators used in the program must be “trained in all relevant aspects of the law, have knowledge of community-based resources and mortgage assistance programs and refer homeowners to these programs when appropriate.” Once an Appearance has been filed, no judgment of foreclosure may be entered until the mediation period has expired or otherwise terminated. Under the program, the mediation process is designed to address all issues of foreclosure including reinstatement of the mortgage, restructuring of the mortgage debt and foreclosure by decree of sale. Between July 1, 2009 and June 30, 2010, 26,510 foreclosure cases were filed in Connecticut and 21,174 cases were eligible for mediation under the program. Of those cases, a Foreclosure Mediation Certificate was filed in 47 percent, or 9,865, cases. An overview of the program may be found on the State of Connecticut Judicial Branch website. A copy of the Foreclosure Mediation Program statistics by county may be viewed here. Disputing has recently discussed similar programs which offer foreclosure mediation to borrower-occupants in both Hawaii and Florida. In Hawaii, 27 of the 31 home foreclosure cases that qualified for its Mortgage Foreclosure Pilot Program between November 2009 and June 30, 2010 requested mediation. In contrast, less than half of homeowners facing foreclosure in Miami-Dade County, Florida have complied with state-mandated mediation since January. Technorati Tags: ADR, law, mediation